Crypto Fundraising Methods (ICOs, IDOs and IEOs)
Before we get into discussing modern crypto startup companies’ fundraising methods, let’s do a quick review of traditional crowdfunding approaches, such as venture capital, bank load and IPO.
Venture capital is a method of private equity financing that is supported by investors and directed towards early-stage companies and startups, on the assumption that these companies will appreciate in value over time, providing investors with significant profits from their shares, which were acquired at a low cost.
Bank load is a well-known form of capital rising when a company goes to a local bank to ask for a loan in which bank representatives access the potential of the company to ensure receives borrowed money back.
Initial public offering (IPO) is a way of crowdfunding when a company offers its shares to the public in order to raise capital. Public companies are required to comply with both exchange listing rules and SEC regulations.
Now when we reviewed traditional fundraising methods, let’s take a look at modern ones.
IDO
An Initial DEX Offering (IDO) is a crowdfunding strategy when crypto startups offer their tokens to the public through decentralized exchange (DEX) rather than approaching investors or asking banks for a loan.
Anyone can take part in IDOs by providing liquidity to the pool for newly launched tokens.
Whilst traditional companies are looking for venture capitalists to support, crypto projects launching IDOs to receive funds from individual investors and crypto enthusiasts. In contrast to traditional financing methods such as venture capital and IPO, modern fundraising approaches don’t offer investors ownership of any equity.
We can consider lower costs and instant liquidity as the major advantages of IDOs compared to ICOs and IEOs.
ICO
An initial coin offering (ICO) can be viewed as a cryptocurrency’s world version of an initial public offering (IPO). However, IPO is much more complicated and effort required than ICO in terms of regulatory requirements. A project seeking to increase capital to create a new coin can launch an ICO as a way to raise funds.
ICOs provide an advantage by creating direct connections between companies and investors, removing intermediaries from the capital-raising process. Moreover, the interests of both parties are in sync.
IEO
An Initial exchange offering (IEO) is the process of digital asset procurement through an established exchange for the purpose of raising capital for start-up companies.
The core difference between other fundraising approaches and IEO is, that other ones launch coins and conduct the fundraising themselves, whilst an initial exchange offering uses well-known crypto exchange platforms such as Binance, where crypto enthusiasts can enquire coins/tokens through their wallets on the exchange.
Many crypto projects are turning towards initial exchange offerings as a means of raising funds, as Initial coin offerings have become less attractive in recent years.
Investors are increasingly favoring IEO platforms due to the enhanced level of due diligence they offer compared to ICOs.
