This post will discuss the differences and similarities between Initial Public Offerings (IPOs) and Initial Coin Offerings (ICOs). Blockchain technology has created a new way for companies to raise capital for their projects through ICOs by democratizing the well-established IPO process.
An initial public offering is a well-regulated process that private companies with a proven, sustained business model use to raise additional capital to build and grow their company. An IPO is traditionally performed by later stage companies to open up equity for their company to the general public. Companies wishing to go public must file an S-1 form with the SEC and open up their books for outside scrutiny. Underwriters such as investment bankers help companies through this 6-month process. Before the company goes public, the executive team will often go on a “road show” to create demand for the stock and pitch the company to investors.
Initial Coin Offerings are a way to crowdfund a project by selling tokens in exchange for fiat currency to any investor across the world who wishes to participate in the ICO. Generally, smaller companies and startups are the ones participating in this one month process. A company wishing to raise capital does not have to go through a regulatory body such as the SEC or establish their credibility to investors. Additionally, there are no restrictions on the crowdfunding period, the amount of capital, or the type of investor who can take part in the funding period. For example, EOS raised over 4 billion dollars in a year-long ICO. ICO’s are also interesting because they allow investors to essentially hold equity in any type of asset. Investors can own shares of expensive art and real estate that traditionally were only available to accredited investors.
The democratization of equity-raising is unique because it creates micro-sharing economies that benefit from the broader participation of the general population. People are responsible for their own wealth because they work hard to earn every dollar they have. Thus, they should be able to allocate it however they want and participate in any type of crowdfunding they see fit. ICOs allow consumers to do just that.