ICO Crowd funding vs IPO
An Initial Coin Offering (ICO) is utilized by many startups and businesses around the world to sidestep the controlled and thorough capital-raising procedures required by banks and investors.
An Initial Coin Offering or ICO is an excellent way to raise funds for a new blockchain project and cryptocurrency venture. The cryptocurrency coins are similar to shares of a company sold to investors in initial public offering (IPO) transactions. The money is returned to the early investors if the ICO is not able to meet the minimum funding requirement. In such cases, the ICO is deemed to be unsuccessful. If the funds requirements are met within the promised time frame, the raised money is used to either initialize the new scheme or to complete it.
Raising money through an ICO is different to raising money through venture capitalists or other means. Without giving up equity and becoming a public company from day one, startups and small businesses will be able to raise funds and sell their blockchain technology platform. ICO Ratings is also crucial as investors will get an overview and will be able to know about the best ICOs to invest.
It means that everything that startups and small ventures do will reflect on the price of their cryptocurrency tokens. The team discussions of the startups and small business ventures are likely to push publicly, and their team might have queries multiple times a day about the price of their token.
Some key characteristics of an ICO include:
- The prices of an ICO are usually set by the creators of the economy, decentralized autonomous organization (DAO), or project.
- The crowd sale may have multiple rounds of fundraising with token or coin offerings.
- Early investors are likely to have greater rewards embedded within their tokens as an incentive.
- The value of the offered cryptocurrency tokens will increase in value until the release date.
- It will conclude once the coins or cryptocurrency tokens are tradable in the open market.
- In most ICOs, the creation of coins or tokens is defined prior to sale.
- After the final token sale, all the unsold tokens are burned (in the majority of ICOs).
- The investors don’t have the right to vote on the direction of a project or DA when they have the tokens sold during the ICO.
- Early investors have the right to give input throughout the lifespan of the project.
- The ICO generally sells participation in an economy of the project.
- The ICO tokens will sell a right of ownership or royalties to a project or DAO.
- The ICO will tend to be open from between a few days to a month or two. Sometimes several months.
- It is essential to understand that some ICOs have been open for longer and fundraising for a particular ICO may possibly take place on multiple occasions.
Similarities and differences between ICOs and IPOs
- ICOs may only give the investors rights of a particular project but not the company launching the project whereas an IPO gives the investor the ownership of the startups based on the number of shares acquired.
- With the CEO and the board involved in the day-to-day running of the business, the decision making in the IPO companies are centralized. The decision making is decentralized in some ICO projects, which gives the investors a material decision-making position.
- An IPO is a onetime sale with multiple intermediaries involved to determine the conditions, and pricing of the shares. ICOs have multiple rounds of fundraising.
- It is essential to understand that the stock exchanges and the companies listed by IPOs are heavily regulated. The cryptocurrency exchanges on which ICOs (like Lendo, ABYSS, BunnyToken) are launched are not regulated in the majority of the jurisdiction around the world.
Different phases of ICO
An ICO means that startups or small business ventures offer investors units of a new cryptocurrency tokens in exchange for funds in the form of fiat currency or cryptocurrency currency. The ICO has been in use since 2013 to raise the necessary funds for the development and marketing of a blockchain-based or cryptocurrency project by releasing tokens which is somehow integrated into the project. Similarly, Influencer marketing is also a powerful way to market for your ICO, where well-known brand campaigns reach engaged audiences.
The process of raising money through an ICO by small business enterprises often starts with the creation of a detailed white paper. A white paper is a document that will contain and state the complete project details such as the money required to undertake the venture, what needs the project will fulfill, what type of currency will be accepted, how long the campaign will run, and the distribution of the funds once raised.
We will explore the different phases associated of the ICO in order to understand ICO funds better.
Phase 1: Analyzing
It is essential for startups or small business ventures to analyze the requirement of blockchain technology or cryptocurrency tokens for their business or project. Moreover, businesses need to understand that the development of a decentralized application is much more expensive than for centralized applications. When compared to AWS/azure, the cost of the computing associated with decentralized applications is often on the high side.
Analyzing is part of the ICO launch with brainstorming on a viable economic model. In addition, it is carried out by professionals to find the needs of the token for the business and defining the utility or function of the cryptocurrency coin or token.
Phase 2: Planning
The most essential components of the planning are deciding on precaution against the hackers, token design, the token offering, and conducting a communication strategy.
Businesses will need to start defining the amount of funds that they want to raise and the results they are expecting with the distribution method. The business requirement is one of the key focuses of the planning phase of the ICO.
The motivations behind creating the ICO such as raising the most amount of money possible and creating broad base of supporters are the key focuses of the planning phase of the ICO. Businesses or start-ups need to keep a clear picture of processes that they need to follow while launching an ICO. These key aspects involved in the ICO process include deciding the investors and partners and the money they want to raise.
In addition, it also involves the decision about the soft and hard capital. The planning of an ICO also includes working on some essentials such as the type of cryptocurrencies that they are going to accept, the token-releasing process after the presales, the verification process structure, and defining the process for institutional/funds investors.
Startups and businesses should also pay intention to synthesized documents containing all the key elements, which is called the white paper. This should contain all of the inner workings of the application, the use of the token within the system, token allocation information, and the technical information about your project.
Phase 3: Launching
The launching phase of the ICO is all about bringing the planning of the ICO project to execution. It is also about using all viable channels for communicating about the project. It is essential to keep your team ready to respond to all the queries raised by the public. It is also a good time for companies to hire a reputable law firm who have experience with running an ICO process and blockchain companies.
How does ICO funding work and how to use an ICO?
By establishing the blockchain and setting up the protocols and rules, businesses can kick start the ICO processes. The next step is to begin mining for cryptocurrency coins that will be sold during the ICO for the creator with social media sites. Creators will not only increase the required funding but also push demand and price post-ICO.
A step-by-step guide of an ICO can be summarized as follows:
This is the marketing stage of a future project through sites frequented by cryptocurrency investors. During the pre-announcement, the creators of the ICO project will prepare a white paper, which is essentially a presentation for the investor that will outline the details of the project.
The company will get a sense of whether there is investor interest in the project proposed once the white paper has been circulated. The company will get address concerns and risks raised by potential investors. It will help creators to reach a final business model and final version of the white paper. It also helps investor to know how to invest in ICOs.
It will set out the terms of a contract for the benefit of the investors. In addition, they will make it on behalf of the company entering into the ICO. The initial coin offering will determine the total amount of capital required and outline the project details together with project timelines.
The financial instrument to be sold will be indicated during the offering of the ICO, normally a cryptocurrency token. Together with the rights of the investor, the financial instruments will have a value assigned to them. The ICO start date is announced once the offer has been signed. For most of the token, the ICO countdown has already begun.
ICO marketing campaign:
The marketing campaign is a pivotal component of the ICO. The campaign will be important for startups to raise the necessary capital. The selling of the cryptocurrency tokens begins once the marketing ICO campaign starts. comes The companies will also ensure that their token will be listed to cryptocurrency exchanges for investors to exchange and trade.
Legality of the ICO
It is essential to understand that the legal state of ICOs is mostly undefined in the majority of the countries around the world. Ideally, the cryptocurrency token during the ICO is not sold as a financial asset but as digital goods, like many other commodities. The token sale is often called a “crowd sale” by experts. The funding raised by an ICO is not regulated in the majority of jurisdictions which makes the planning and execution of an ICO easy and paperless if a legal expert who is experienced with the issue of blockchain technology, cryptocurrency, and ICOs is on board.
Similar to the sale of securities and shares, some jurisdictions seem to be aware of ICOs and usually tend to regulate them. It could bear some financial, as well as legal, risks for investors to invest in ICOs in jurisdictions that systematically regulate them. In addition, the effort and the cost to comply with regulations could reduce the benefits of ICO in comparison with the traditional means of funding.
Benefits for companies launching ICOs
It is essential to understand that the economy, project, and DAO are not necessarily subject to taxation, whereas the funds raised through the IPO are subjected to taxation.
During the ICO, the sale of tokens or cryptocurrency coins are direct, which may include multiple funding rounds. Moreover, there will be very few (if any) intermediaries required for the raising of funds during the ICO and sales of tokens/coins to early investors. Investors base investment decisions on the content of the technical document (white paper), which is prepared by the fundraising entity. For more information and services you can visit our website.