IPO’s vs ICO’s
What is an IPO?
As a company looks to go public, they work on creating an IPO, which is short for an initial public offering. Usually, this company hires an Investment Bank to help make important decisions regarding the IPO, including setting the price, date, and researching market demand for the company. When a company goes public, that company shifts from being a private corporation where no outsiders can be issued stock, to being traded on the public floor allowing public investors to purchase shares of the company. In order for a company to qualify for an IPO, they have to follow all the guidelines and requirements of the Securities and Exchange Commission (SEC)
What is an ICO?
With the rise of cryptocurrency in today’s world, especially in financial markets, ICO’s — or Initial Coin Offering is more common. This is a variation of the traditional IPO. An ICO is used for a cryptocurrency industry to raise funds for their company in order to help complete their goals. Many startup companies are taking this route to help raise money. To partake in an ICO, one needs to purchase a digital currency and have background knowledge on how digital currency works.
How are they similar and different?
Because ICO’s tend to be almost fully unregulated they are risky. Not only does it take someone to understand how digital currencies work, but this person also needs to be very careful and complete extensive research on their ICO investment. On the other hand, the SEC keeps IPOs extremely regulated and there are strict guidelines in place to minimize risk for investors.
Also, during an IPO, when an outside investor purchases issuances of stock, those stocks give the investor partial ownership of the company. However, during an ICO, the investor is hoping that investing in this currency now will yield greater returns and increase in worth thus making the investor money.
Investing in IPOs is usually simple if the investor is from the same country as the company, however, the process becomes more complicated if the investor wants to buy stocks internationally. Investing in an ICO is open to everyone internationally.
Wrap Up
An IPO and ICO can be equally as successful or disappointing. A company that went public can go bankrupt and the investment can vanish or, the company can do very well and an investor can make money through dividends or selling the stock at a higher price than what they bought it for. An ICO can never make it and the investment in the currency provides no benefits or this project does very well and yields a great return. In turn, in order to have a successful investment, it is imperative that one does extensive research on the company they choose to invest in and weigh the pros and cons of each investment.
