While ICOs have been around for five years now, many still don’t know what they are, let alone how to invest in them to earn some handsome returns quickly.
The term ICO stands for initial coin offering. An initial coin offering is a fundraising tool that is somewhat similar to a crowdfunding campaign, but instead of being offered a product, the offering is digital tokens. These "coins" can then be traded freely with online exchanges offering greater liquidity to investors than traditional equity investment. A report on the ICO boom noted that startups and projects raised $5.6 billion in 2017 through so-called initial coin offerings (ICOs).
Advantages to Founders
Founders can raise capital more quickly with an ICO compared to traditional fundraising methods. Additionally, the marketing and settlement costs with ICOs are considerably lower than those of conventional methods. This is because an ICO is offered only online. For instance, Ethereum raised $2.3 million in its first 12 hours in 2014.
Advantages to Investors
The main advantage ICOs offer to investors is their liquidity. ICOs offer investors an opportunity to make substantial gains quickly. Almost anyone and everyone can invest in an ICO. You might be living in Timbuktu, but if you want, with a few clicks, you can purchase an ICO offered by a US company. However, ICOs are out of bounds for people living in South Korea and China.
Significant as the benefits of ICOs are to people looking to invest, they have one major drawback. The risk of being duped by bogus companies is real. That said, as long as you don’t bother yourself with founders offering an unrealistically high return on investment, you’re likely to be fine.
Initial Coin Offering (ICO) vs. Initial Public Offering (IPO)
Unlike IPOs, which are heavily regulated, ICOs have little regulatory oversight. ICOs are used to fund projects that only exist on paper, while well-established companies use IPOs to raise capital. Another key differentiator is that ICOs are open to all, but IPOs are exclusive. It is also important to note that unlike an IPO, investing in an ICO won't result in you having an ownership stake of the company you're giving money to, but rather an opportunity for the token to gain value over time.
Are You Ready to Evaluate Funding Options?
Whether it's an ICO or IPO, RocketSpace can help you scale your company. RocketSpace Startup Services is purpose-built for growth-oriented startups and scale-ups. Reducing the fundraising timeline by raising capital from strategically aligned investors is the single largest competitive advantage a startup can have, and it's one that compounds over time. RocketSpace leverages extensive investor relationships to expedite your fundraising journey. Through high-quality, hands-on, and customized coaching, RocketSpace will lead you to the right investor — fast!