An Initial Coin Offering commonly referred to as an ICO is a fundraising mechanism which has gained popularity recently. In an ICO, new projects raise fund by offering company created crypto tokens. An ICO is similar to Initial Public Offering (IPO) in which investors purchase shares of a company.
ICO is a new phenomenon but it has quickly become a dominant topic of discussion as a means to raise fund for startups.
The basics of an ICO:
In order for a cryptocurrency startup firm to raise money through an ICO, it usually creates a plan or whitepaper. The whitepaper is an alternate
- Project Brief and Scope.
- Goals of the Project (Problem/Solution Statement).
- Capital to be raised.
- Distribution of the created tokens.
- Accepted currencies for the ICO.
- Utilization of funds generated through ICO.
- Length of ICO.
During an ICO campaign, the enthusiasts and supporters of the firm’s initiative with fiat or virtual currency buy some of the disturbed crypto-coins. These coins are also known as tokens which are similar to shares of a company. Tokens are sold to investors in an IPO-type transaction. If the money which is raised doesn’t meet the minimum funds that are required by the firm than the money is returned back to the backers and the ICO is deemed to be unsuccessful. However, if within the timeframe the fund’s requirements are met then the money raised will be used as specified in the whitepaper.
Why will a startup company prefer an ICO?
A startup company may prefer an ICO because of its benefits as listed below:
Retaining control: The Company doesn’t have to be shared with an investor. The investor invests money but
Globalization: While some companies look for an investor by going door to door, with an ICO money can be immediately raised from anybody in any country worldwide.
No regulation: There is no bureaucracy or paperwork required to ICO. Tech startup success is all about being the first on the market before someone else can take the jackpot.
It should be noted, with the rise in scams, new regulations have been implemented and some are under review. These new regulations will certainly impact the popularity of ICOs as a mechanism to raise capital.
What is an ICO token?
ICOs are fast evolving. Ethereum based ERC-20 tokens were the standard for creating a token that would then be used in an ICO. The token signifies a contribution to the startup. Each token would hold a set value in the accepted currencies for the ICO. Accepted currencies were predominantly Bitcoin and Ethereum. However, newer ICOs have allowed fiat cash.
Should you invest in ICO token?
This comes down to personal choice. Sentient Solutions always advises all clients to do their homework before making any investment. The crypto market has made a lot of people a lot of money and has lost a lot of people a lot of money.
Crypto-currency is highly volatile
Sentient Solutions has helped many startups write whitepapers and launch ICOs. If you are planning to use crypto-currency reach out to us for a free crypto-consult.
