Investments in bitcoin are high in Russia as there is a sense of optimism on the continuous surge of the crypto’s price. It is estimated that crypto-based investments reached $200 million in Russia last year alone. Most startups and new firms find it difficult to raise capital using the conventional channels. The reason behind this is that most banks and credit offering financial institutions are skeptical of funding high-risk projects.
For such startups, having substantial collateral is necessary to secure financing. And this is not the only challenge facing startups across Russia and the globe. Venture capitalists have the habit of imposing unfavorable conditions on new businesses. These among other challenges, coupled with the surge of cryptocurrencies, has been pushing Russian startups towards raising capital using ICOs (initial coin offerings.)
Growth Dynamics: $20 Million to $200 Million
In 2016, Russia recorded only 20 crypto-financed projects. The number has significantly increased in 2017 to more than 100. While most investors attribute the growth to bitcoin gaining popularity, experts believe that the lack of stringent government regulations is the most significant driver of the coin’s dynamic growth. The lack of strict cryptocurrency regulations are the catalyzers to ICO funding which leaves investors poorly protected. In Russia, crypto-backed investments in startups have increased ten-fold from $20 million in 2016 to $200 million in 2017.
So far, Russian’s have been able to raise approximately $310 million in ICO token sales; this puts them just behind the United States and China. Additionally, Russian teams have been able to collect 11% ($260 million) of the total capital made available through initial coin offerings over the past four years. Some of the most notable Russian crypto-financed projects include MobileGo (a mobile gaming platform that received $53 million), the Russian Mining Company (receiving $45 million) and the Supercomputer SONM (receiving $42 million)
Regulations Russia Seeks to Impose
While crypto-based financing is helping startups, experts are warning that the lack of a legal framework to regulate ICOs, is favoring entrepreneurs, while putting investors at a disadvantage. There is a looming taxation issue that awaits answers from the Russian authorities and proposed ICO regulations that if implemented, will limit the amount an ICO can receive per individual.