In the past, raising money as a start-up required small companies to convince banks, investors and financial institutions to take big risks, by investing large amounts of money into unproven technology and ideals. However, this has changed with the appearance of Initial Coin Offerings, also known as ICOs.
For those who do not know, an ICO represents a crowdfunding event that start-ups and other companies use in order to raise money for their business venture. It is a form of symbiosis between the well-known Kickstarter projects and Initial Public Offerings. Therefore, upon making an investment, people receive tokens that will then increase in value when the company reaches success- therefore, companies are making their shares available to the investing public without having to get listed onto the stock market. However, it is important to point out that these tokens aren’t exactly shares of the company, yet as the start-up in question becomes more profitable, so will these tokens which can be traded on exchanges for real money.
As ICOs are considerably easier to conduct, companies can therefore avoid the numerous forms of regulatory pressures being put on them when creating an IPO, or looking for venture capital. Not only this, but they also allow large amounts of capital to be raised in short periods of times. ICOs can therefore be held to receive profit distributions, or be sold on exchanges for a profit.
It is important to keep in mind the fact that ICOs are currently unregulated, therefore they can hold both great risks, but also great rewards for those who wish to invest. In the world of digital currency, large fortune can be made overnight, yet it can be lost just as easily. Due to the lack of regulation, there are no legal reporting requirements, therefore ICO managers do not need to report problems, loses or even good news to their investors. In fact, they don’t have any obligations once the crowd sale is finished.
When it comes down to investing in an ICO, numerous factors need to be taken into consideration to stay safe. Therefore, only invest in companies that you believe in and that you have thoroughly researched, and of course, never invest more than you can afford to lose. Based on this aspect, ICOs cannot be considered safe investments, but rather high-risks with huge potential for high returns.
Based on everything that has been outlined so far, ICOs are bound to revolutionize the way that start-ups and other companies raise money, yet regulation is needed to ensure that investors are not tricked, and that companies do their part in relation to their investors once an ICO has concluded.