Search for a financing source is the key development factor for many companies; this statement is true in respect of very young businesses as well as the experienced market players.
IPO (Initial Public Offering) is the traditional means of large-scale fundraising. A company sells its securities on an exchange, thus receiving profit, which often significantly exceeds its annual income. But IPO is rather elite crowdfunding form, raising funds from an unlimited range of people. The share preparation procedure comes at a price and requires considerable amount of time, up to a year. Plus there is a high entry threshold set for investors. Thus, only large companies can undertake an IPO and only large sponsors are able to buy their shares.
The more democratic environment of cryptocurrency market has given birth to the ICO (Initial Coin Offering) notion, similarly to the IPO term. The companies having chosen this way of fundraising issue digital tokens instead of shares. The investors will be able to use the acquired tokens in the future as follows: to pay for the services within the platform on more favorable conditions or to wait until the tokens go up in price, enter an exchange and trade them for other cryptocurrencies or fiat money at a profit.
Since an ICO involves token issue, a project launching such campaign must employ blockchain technology. ICOs are mostly launched by fintech start-ups when the product itself exists only on paper. But even if at first thought a business has nothing in common with information technologies, it does not mean it cannot run an ICO. One just needs to think how to introduce blockchain technology to this particular project. Because blockchain has been created to make people's lives easier. A simple example: a farm can create an Internet platform where the company tokens will be used to make better deals for the products.
However, one must understand that an ICO is not the same as an IPO. IPO investors purchase a share in a company and become its coowners, while ICO sponsors only get internal currency. The legal status of the ICO is not defined either, the investors are not legally protected in case their financing object fails on the market. Or not even in case of a fail on the market, but at failure to enter it; there are cases when companies get the funding and never make the product. The crypto industry is now a kind of Wild West where anyone can establish their own rules.
So study the project thoroughly and pay close attention to the development team when investing large sums of money. However, even the smallest sums can be invested in an ICO, the token prices start with several cents. This is one more fundamental difference between ICOs and IPOs: anyone can become an investor, they just need to create a cryptocurrency wallet on any convenient platform, replenish it with any amount, wait for the token sale start - a couple of clicks and you have acquired the tokens.
There also exists a Pre-ICO practice. This procedure is not mandatory but more and more companies prefer holding a closed pre-sale. Tokens cost even less at the Pre-ICO stage but the purchase entails great risks for investors. The money received from the token pre-sale is often invested in a beta version of the product.
Thus, the blockchain technology offers companies to raise investments for implementation of their ideas in a simple way, with no sale of the company shares. The ICO market is quite young and still is in its infancy. However, it has some growth problems resulting primarily from ambiguous legal situation and increasing number of bad faith and even fraudulent start-ups.
Perfect article, enjoy your merit. It's exactly the reason why people are enjoying ICOs, because it's so easy to invest in them comparing to IPOs. But it's also much riskier. Very nice summary
