You may read about Bitcoin, AI, ML, Blockchain and Big Data, which are some of the most overused terms on Social Media and the Economic Times. Joining the wagon latest is the ICO, Initial Coin Offering. Read on to know about this viral phenomenon!
According to a definition on Wikipedia, “Initial coin offering (ICO) is an unregulated means of crowd-funding via use of cryptocurrency, which can be a source of capital for startup companies.”
Let me decipher this for you- Fundraising has been quite an issue for startups and small businesses. You need great communication skills, need connections in the corporate world, media presence and some real hard-work there. Fundraising needs a lot of attention, which affects the company’s performance as a whole.
Most recently, crowdfunding platforms have come up, like Kickstarter and Indiegogo, which were affective, but carried certain disadvantages as well. The platforms took up 5-10% of the funding, making it difficult for companies with less Social Media and PR presence.
Now, ICO, the latest concept in the corporate world, is a fresh approach to fundraising.
Let’s imagine an ABC startup that you have founded. Your company has gained some real popularity in the market over the past few months, and now you want to raise some money for accelerating the growth of the organization and hiring some more workforces to expand the business. You can go to Angel Investors or start a campaign on Kickstarter, or you may opt for ICO. In the case of ICO, you will have to prove your credibility and guarantee your competence, so you put your plan on a whitepaper which states all the details of the project, the anticipated results of the project, what it aims to deliver to the consumers upon completion, how much money is needed for the operation of the project, how much of the profits does the company keep for itself, the type of money accepted and the period of the run of the project. So during this campaign, supporters and enthusiasts buy some of the distributed cryptocurrency, referred to as tokens, using virtual currency. If the money raised does not meet the minimum funds required by your firm, the money is returned and the ICO is deemed to be unsuccessful. But, if the money raised in the specified timeframe, does meet the requirements, that money can be used to initiate or complete your project. What happens next is that after the ICO is finished, the goal is generally to get the token listed on as many big exchanges as possible where others who missed out in the ICO can buy it later. The more the demand, the higher the price and valuation of your company.
ICO is fairly new to the market, so among all the mixed reviews so far, it still have a long way to go.