ICO funding for startups is a topic that was unheard of just a few years ago. But that’s not the case today. In fact, ICO funding for startups is slowly but surely becoming increasingly more popular as a topic of discussion among founders. First, let’s define what an ICO is (and isn’t). ICO stands for Initial Coin Offering. In this case, ‘coin’ refers to cryptocurrency ‘coins.’
In December 2017, the market cap of cryptocurrencies reached $815 billion, up from just $15 billion in December 2016. The huge growth of cryptocurrencies spurred the interest and attention of investors and founders around the world, from South Africa, to Asia and Wall Street alike.
ICO Funding for Startups – ICO Campaigns
ICO funding for startups refers to an Initial Coin Offering (ICO) as a means of startup fundraising that uses blockchain technologies to offer investors the opportunity to invest in a digital currency (cryptocurrency) in exchange for Bitcoin. Currently, there are more than 1,000 cryptocurrencies or tokens on the market today.
ICO funding for startups functions in a manner very differently from traditional funding strategies such as venture capital or even an initial public offering (IPO). With an IPO, the investor does not receive equity in the company in exchange for the investment. Instead, the promise of an ICO is that the coin can be used on a product that the startup creates. In addition, ICO investors also bet on the hope that the digital token will appreciate in value. The investor can then trade the token for a profit.
For example, in 2014, Ethereum did an ICO, raising about $18 million in bitcoin, or the equivalent of 40 cents per ether. As of August 2018, Ethereum was trading at more than $287, with a market cap in excess of $29 billion.
In terms of ICO funding for startups, ICO campaigns typically begin with a white paper outlining the project details, how tokens and coins will be distributed, and the duration of the campaign. The supply of coins may be fixed or dynamic. Some ICOs that take the route of the former can adjust the price of coins or tokens based on demand. The others, which have dynamic supply, can create a new coin whenever the demand calls for it.
The system of ICO funding for startups is not yet perfect, and scammers are well aware of this fact. Since ICO funding for startups first appeared on the global scene, a huge number of ICOs did not deliver on their promised returns. However, it is important to note that not all failed ICOs were initiated by scammers—many simply just didn’t take off as planned.
ICO Funding for Startups: Why Startups are Turning to ICOs
Startups are using ICOs to bypass the traditional capital-raising process and the costs associated with funding a startup through more traditional means such as venture capital or banks. The nature of ICO funding for startups attracts founders who don’t like giving up equity to investors. On the flip side, this can also lead to investor doubt. There are now platforms that allow startups to launch ICO campaigns. One such example is Ethereum, which is a product of a successful ICO campaign itself.
Is This the Future of Fundraising?
There are still many who are in doubt that ICO funding for startups will lead us to the future. And frankly, there are still a lot of kinks to iron out.
Even the U.S. Securities and Exchange Commission hasn’t yet decided if ICOs are securities offerings or not. For this reason, we mostly see ICO funding for startups outside of the United States. For example, Acudeen—a Manila-based startup and graduate of the Founder Institute program—raised about $6 million (USD) in funding through an ICO. Here is an excellent article if you are interested in learning more about launching an ICO while avoiding regulatory issues.
A quick look at our history reveals a lot of ideas that were controversial in the beginning but turned out to be a force that helped shaped the present time. How ICO will go down in history is yet to be seen. Interested in learning about ICO funding for startups? Contact me today and let’s talk!