ICO | Innovation in the crypto age

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ICOs – The New IPOs?

How to fund innovation in the crypto age

Initial Coin Offerings (ICOs) are a relatively new way to fund start-ups and projects. Similar to an IPO, an ICO is a way for a start-up or an established company to raise capital, and a vehicle of investment for potential investors. In this paper, we will focus on the possibilities to use ICOs to fund Blockchain or cryptocurrency-based start-ups and projects.

How do ICOs work, what are key considerations for successful ICOs and how will they disrupt VC? Download the report „ICOs – The New IPOs?“ to get the answers.

Usually, capital and “shares” in cryptocurrency start-ups and projects are represented by tokens. In an ICO, the companies seeking funding sell their cryptocurrency tokens in exchange for financial investment or other contributions; the funding is executed using Bitcoin or other cryptocurrencies. How did ICOs develop in the last years, how can they be compared to IPOs and what are prerequisites for successful ICOs?

Key Considerations for Successful ICOs

Key Considerations for Successful ICOs (Extract from Report)

  • Good match between ICO and business:
    It is crucial for a business promoting its ICO that the product is directly linked to blockchain technology and that it cannot be substituted by a non-blockchain system, e.g. a simple database.
  • Building the right team:
    The practical experience of many successful ICO campaigns shows that the team, the goals, and the protection of investors’ interests are the three topics which tend to interest the audience the most. Therefore, they need to be decided and articulated clearly to the audience before the launch of an ICO.
  • Sending the right message:
    From a perspective of communicating the project goals, it is imperative to have a white paper and a roadmap prepared before the launch of an ICO. A white paper usually accompanies an ICO for evidence purposes and outlines the content of the ICO, like a prospectus for an IPO, but with the key difference that white papers are not mandatory documents.
  • Protecting investors’ interests:
    Early-bird discounts for investors are regularly used to incentivize investments, especially at the beginning of an ICO where there is uncertainty about whether the business idea will be accepted by investors. There should also be a process in place for returning funds to their contributors, because it is always possible that the ICO will fail to reach its target and trigger a campaign roll-back.
  • Considering an ICO Platform:
    There are special platforms whose entire purpose is to ease both the process of launching an ICO and investing in one. They work similarly to platforms that aggregate various crowdfunding projects and make it easy for contributors to find the ones they want to invest in. This approach can save a lot of money and effort, compared to launching a digital token and a Blockchain on your own, which is inevitably associated with development costs. Admittedly, it gives the company less control over the token’s further development, but if it is not the company’s main product, then the trade-off may be well worth it.
  • Abiding by the law:
    Every country has different legal aspects that must be considered when launching an ICO. While some countries have laid out generic guidelines for ICOs, others can range from detailed stipulations to no guidelines at all.

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