In fundraising circles, it was the year of initial coin offerings (ICOs). The fundraising method, which offers mainstream investors the chance to invest in a startup using coin tokens, was a largely unknown entity at the start of 2017. Toward the end of the year, however, they have reportedly raised $3.25 billion. 

But ICO enthusiasts might want to hold off before uncorking the bubbly. China’s government has already banned such offerings. In the United States, the Securities and Exchange Commission (SEC), which largely looked the other way as ICOs gained traction among investors, has increasingly become vocal about bringing them under its purview. (See also: How The SEC Is Regulating ICOs). 

Last weekend, the agency took the unprecedented step of halting an ICO. Munchee, a blockchain-based app for posting restaurant reviews, intended to raise funds by distributing a coin called MUN.  

According to a whitepaper issued by the startup, MUN was to be used as currency within the Munchee app to incentivize restaurants and reviewers to purchase services or earn rewards. The coin could also be moved to a cryptocurrency wallet and exchanged for bitcoin and ethereum, the world’s top two most-traded cryptocurrencies. That last bit transforms MUN from a utility token, which places it outside the SEC’s purview, to a security token that is tradeable with an existing currency.

The whitepaper also claimed erroneously that MUN was not subject to federal laws regarding securities. According to reports, the startup stopped the token sale “hours” after hearing from the SEC.

Given SEC Chairman Jay Clayton's recent statement, it is quite likely that the SEC will actively monitor and flag offerings. (See also: SEC Chairman Warns Cryptocurrency Investors To Beware.) In fact, SEC officials recently discussed ways in which entrepreneurs can hold token sales compliant with federal securities laws.   

In the meanwhile, numbers relating to ICO fundraising aren’t looking too good.   

According to a report by research firm Smith + Crown, only 69 of the 169 ICOs in October 2017 managed to reach their fundraising goals. The rest ended up “either extending, postponing, or cancelling outright their own proposed sales.”

Architect Partners, a Palo Alto-based M&A firm, evaluated data from Smith + Crown and to calculate success rates for initial coin offerings. The firm found that the success rate of ICOs plunged to 34% in September from a high of 92% in June. Further, the median amount raised by ICOs declined from $4 million in July to $2 million by September.