ICO – What’s It All About?
An initial coin offering (“ICO”) is the sale of ownership or royalties to a project or company, via the use of cryptocurrencies
An “ICO” is similar in concept to an initial public offering (IPO), both a process in which companies raise capital, while an ICO is an investment that gives the investor a cryptocoin, more commonly known as a coin or a token in return for investment, usually Ethereum, which is quite different to the issuance of securities as is the case in an IPO investment.
ICO’s have certainly grabbed the headlines and the imagination of the entrepreneurial investor, with one of the key principals of an ICO being the decentralized decision-making process, where investors are given the right to decide the direction of the company or project.
Over 2017, “ICOs” have raised in excess of $5.6bn, and so far $3.45bn in 2018 as companies and projects looking to by-pass venture capitalists and investment bankers, the sheer scale of growth drawing the attention of Central Banks and a possible shift in sentiment towards the fundraising process in general.
Perhaps the biggest headline for “ICOs” in last year was the decision by the PBoC to ban “ICOs”, deeming them to be illegal, adding that those who have already raised money must provide refunds and how other central banks move on the PBoC announcement will certainly be key to the continued success of “ICOs” over the near-term.
5 things that every entrepreneur needs to know about ICO
Not too dissimilar to investors looking to park capital into a start-up company or project, there are do’s and don’ts for any investor to consider, particularly if this is the first dip into the Cryptoworld.
Five that spring to mind would be:
1.Where: Budding entrepreneurs looking to become a virtual board member of one of the Cryptoworld startups and influence the direction of one of the ever growing number of projects or companies don’t have to look too far to find what’s on offer, with sites including Reddit, Cyber Fund and even social media sites such as Facebook listing up and coming “ICOs”, though as the Cryptoworld continues to expand, the number of sites housing ICO calendar are certainly on the rise.
2.Who: Identifying a company or project of interest is certainly important, particularly when considering the fact that the investors will ultimately decide the fate of the company or project and whether it’s a success or failure, therefore, any failure rendering the value of the tokens received worthless. A broad knowledge and interest across the investor base will increase the prospects of success and earnings, investors sharing their knowledge and skills to the progress of the company or project will lead to its ultimate goal.
3.Why: While the number of “ICOs” is certainly far and beyond the IPO numbers we see today, some due diligence is certainly recommended, with a number of fraudulent “ICOs” grabbing the attention of investors and central banks in recent times. To avoid any such “ICOs” frauds, it’s recommended that investors make a full assessment of the company or project before investing, with companies such as “ICORating” one of a growing number of companies that carry out due diligence on up and coming “ICOs”.
4.When: As any entrepreneur will contest, timing is everything, so the due diligence on the project or company shouldn’t just be restricted to whether it’s likely to be fraudulent or not, but also whether the foundations of the company or project appear viable or whether a vision is just a little too ahead of its time, which could end in failure, irrespective of how successful key investors are in providing the necessary direction and influence towards the end goal. The entrepreneur should have a broader vision of the company, its product and the field it is striving for.
5.What: It wouldn’t be advisable to just enter into any “ICO”, regardless of how entrepreneurial an investor may be. Picking and choosing the right opportunity is certainly the key and one of the basic skill sets of any successful entrepreneur looking to branch out.
As Central Banks begin to take a closer look, the PBoC unlikely to be the last to ban “ICOs” over the near-term at least, time may be running out for both the budding entrepreneur and the company founders or project designers, which could see fundraising fall back into the hands of venture capitalists and investment bankers. So, we can expect a flurry of activity over the near-term and perhaps other developments that can overcome the current system, for instance, the latest upgrade to ICO’s by Vitalik Buterin (Ethereum founder) – DAICO.
This article was written by FX Empire