ICOs as The Future of Business Fundraising
By Matthew Torpey
Many people associate the idea of an IPO with huge companies making enormous amounts of money from investors or as the steady increase of a company’s stock price as people struggle to get in to make profit before its price gets too high or falls. An IPO is an easy way for companies to increase their value and gain capital without changing much about their business. Have you ever wondered how a company or firm that is in the cryptocurrency market might be able to achieve a similar outcome when they can’t give equity?
The way companies in this emerging crypto market gain enormous amounts of capital are through ICO’s. ICO stands for Initial Coin Offering and can generally be parallel to the basic concept of an Initial Public Offering. Initial Coin Offerings are used by many newer companies in the cryptocurrency market that are looking for investors in order to gain capital for some project. As with an IPO, investors are able to invest in these newer crypto companies by using fiat currency or digital tokens. By investing in the new company they are granted cryptocurrency tokens specific to that company, almost like regular companies equity, but without having to buy them at a specific set price. Doing this allows investors to gain exponential revenues of the coins that take off and are well received by the buyers in the crypto market. This technique of conducting an ICO helps companies avoid dealing with banks and the strict rules that are currently instilled by governing bodies such as the SEC. ICO’s have revolutionized fundraising for ventures in the crypto space and beyond.
For example, Cryptocurrencies such as Ethereum and Neo initially started at selling prices of fewer than thirty cents per coin, but have been valued at up to several hundred dollars per coin, amounting to profits of +100,000%. Investors, and the businesses, who got into these ICO’s early made billions of dollars. It’s important to understand the purpose for using ICO’s as a way of fundraising. These companies understand that the only people who are going to use the resources they plan to provide are people who believe in cryptocurrencies and are actively trying to invest into companies that embody this technology. Some, especially Wall Street veterans, are opposed to this fundraising method.
ICOs allow companies such as Ethereum to attract interested investors and obtain the capital they need to progress their businesses. Ethereum uses the capital they have obtained from investors to advance their core product — “ledger technology that can be used to build decentralized applications, commonly known as smart contract technology”. They do use this revenue to advance their product, but also to protect it from hackers and other threats. I personally see little downside to the idea of a company using an ICO. This technique is very useful and one of the only ways crypto companies can attract capital in order to advance their business. The blockchain industry is very new and a large part of the public don’t believe in its potential or are against it completely. But, without a viable way for micro-cap companies in pioneering spaces to gain capital, the majority will ultimately fail. I think, however, that having a plurality of fundraising methods available to startups will increase the competitiveness and efficiency of the market as a whole. But, these methods must also be able to provide some investor protections.
The future shape of ICO regulation will be an interesting development to monitor. It’s important to look at ICO’s, and the entire cryptocurrency market in general, as a way of changing the financial/business world, not as another potential way for scam artists to make money. The foundation and general idea behind cryptocurrencies are solid and giving them a chance could be revolutionary to our technological advancing world. As the financial technology industry grows, the use, and necessity of these cryptocurrencies will too. It’s imperative we gain a better understanding and practicality of crypto currencies and ICO’s before it’s too late.
