ICO vs IPO Basics
March 27, 2018
ICO’s or aka Initial Coin Offerings are taking the world by storm just like Bitcoin and Blockchain; and changing investment and fundraising landscapes. If you are unfamiliar with Blockchain and how it is more than just cryptocurrencies, please read this article… Initial Coin Offering is the way for upcoming crypto companies to raise capital in a rather unconventional way. In its core ICO is a fundraising mechanism. If you are familiar with investing, you are probably thinking about IPO right now (Initial Public Offering – when a company raises capital by offering stocks to the public for the first time). Even though they sound similar and have the same goal of raising capital, they have major differences:
- Tried, proven & trusted
- Happens in the later stages in a business
- Mostly unregulated (even though this might change over time with adoption)
- Happens in the early stages of a company
- Relatively new and prone to scams
An upcoming cryptocurrency company that’s holding an ICO, writes a whitepaper that explains in detail what their product is, how and why it will be successful and what it promises to the early investors. This paper is not a marketing tool but a way of proving the concept and the investments worth. Just like crowdfunding, holding an ICO is a great way to engage with the community while raising capital and increasing awareness. Investors in ICOs don’t get shares in the company but they receive rewards, which are tokens that underlie the new project. There is a time limit and a maximum number of tokens that can be issued. Also, ICOs can raise more capital than planned but they can’t raise less.
Even though what investors receive aren’t shares, they still can be traded in exchange platforms because they have value. Furthermore, it can be spent later on the platform as well so it’s the best opportunity to get discounted tokens of a project that you think will be successful. Here was a short explanation of what ICOs are and how they are currently used. With the same rapid advancements, it is most certain that there will be further developments and adoption. ICOs will likely be more regulated by the network for scams and also by governments when it gets mass adopted. The industry is pretty positive on how ICOs have been working so far and its future. Here are some opinions of industry professionals.
“ICO’s are also democratizing early-stage investing, allowing a wider pool of investors to participate. Token offerings shift power and control to the Blockchain rather than one or two influential investors. And by diversifying the cap table from the onset of a company’s inception, founders can focus on building utility value for their token rather than appease large investors objectives. Venture capital is moving farther downstream to Series A or later allowing ICO’s to play a pivotal role in helping a startup get off the ground” – Jeff Tennery CEO and co-founder, Moonlighting
“ICO’s will transform capital raising for many reasons, but the most important is that they will enable projects to be funded that would have never have been funded by VC’s.” – Kain Warrick, CEO of Havven
“ICOs are democratizing finance, but the “wild west” atmosphere surrounding them creates special challenges. This includes many companies trying to get rich quick based on the experience of Bitcoin.” – Matthew Schutte, Managing Director of Holochain