Fundraising is one of the main pillars of the modern economy. No company or startup could deliver value to people by providing their services and products if they had not been invested in. It was not necessarily business angels or family offices from London, it could have been 3F — Friends, Family, Fools 🙂 Entrepreneurs have much more opportunities in the global turn of today’s economy than the founders of Apple, Google and even Facebook had. Today, the world is united through all kinds of networks and investors do not have to be in your city or even your country. One of the newest, most interesting, effective and most innovative methods of raising funds is ICO, STO or IEO. How Does the ICO Fundraising Work?
Smart Contract platforms like Ethereum and Neo allow developers to create their Dapps on them. Think of them like a decentralized supercomputer and the Dapps as the applications that one can execute inside.
In order to gain funding for the project, the developer issues a limited amount of tokens (could be utility or security). It is important that the tokens have a limited amount because:
- It makes sure that the ICO has a goal to aim for
- As the demand rises and the supply of token diminishes, it makes sure that the value of the tokens will go up. The tokens have a predetermined price which may go up or down depending on the demand.
ICO trading is pretty simple and straightforward. If you want to buy some tokens, then you send some cryptocurrency (Ether if the platform is Ethereum) to the crowd-sale address. The moment you do that, you get the corresponding amount of tokens sent to your wallet.
Obviously, this is just a general overview. There is a lot of marketing that goes on leading up to the date of the ICO. In fact, paid advertising used to be so rampant that social media giants like Facebook and Twitter had to ban ICO-related ads on their platforms.
Once the startup hits its fundraising goal, the tokens are automatically distributed to the participants in the sale. If the company doesn’t hit its goal, however, the participants receive their funds back.
a) Ensuring Utility
The purpose of the new token varies for every startup that runs an ICO. However, the token should have some utility within the new company. This means that the crowdsale participant will be able to use the token in the future to buy products, gain access to features, or otherwise transact with the startup. The new tokens are not shares. Crowdsale participants don’t receive equity in the new company.
ICOs run on the blockchain. They use blockchain technology to secure the digital tokens, preventing forgery and double spending. While still relatively new, ICOs have become wildly popular. In 2017, ICOs generated more funding for startups than early and seed venture capital. Startups have earned hundreds of millions of dollars in a matter of hours through ICOs. The new fundraising mechanism has become so effective that Indiegogo is now getting involved in ICO creation.
b) Exchanging Tokens
After the ICO, most companies choose to list their newly created tokens on any number of cryptocurrency exchanges. This allows more people to buy and trade the token, creating a demand for the product you’re building.
If your ICO included a reserve of tokens set aside for development, listing your token on exchanges could make your token more valuable, increasing the value of your development fund.
ICOs have the potential to raise your company tens or hundreds of millions of dollars. They also include a community of enthusiastic token holders after your ICO who are excited for the growth of your company. However, the ICO is not without its drawbacks.
a) Technical Expertise
Executing an ICO requires significant technical expertise. Developers need to set up the blockchain for your new token. They’ll also have to program the rules for accepting Bitcoin or Ethereum, counting up the total funds received, and distributing the new token once the fundraising goal is met. Keeping all those funds secure and separate requires specific knowledge of creating an ICO. That knowledge is still fairly limited in the number of developers who can properly execute a safe ICO.
b) Perception of ICOs as Risky
Another challenge is investors are contributing funds to a product that doesn’t actually exist yet. Until you build a platform where the token can be used, the token is virtually worthless. Venture capitalists are comfortable with the idea that an investment may go to zero, and they do extensive due diligence on the team, idea, and overall market as a result. However, ICO participants tend to feel less secure. Many do little due diligence before backing a project. As a result, there are lots of scams in the ICO space. On top of the scams, anecdotal evidence suggests that, in the majority of cases, companies aren’t actually building the products they promised after an ICO
c) The ICO Bubble
ICOs generally are also facing an economic challenge. They’re currently in a bubble. It seems most ICOs, regardless of idea or team behind them, raise money and appreciate in value after the launch. While this may seem like great news for your startup, since it’s likely to get funded, the challenge comes from the volatility of a bubble driven market. The value of your token can fluctuate wildly, and it will often change for seemingly no reason. Bull runs and bear panics are common, and tokens can take wild swings in value over the course of just a few hours.
Thus, we see that raising funds through ICO, STO or IEO is one of the most interesting and effective methods of fundraising. Unfortunately, lately it has become more and more difficult to raise funds due to the huge competition in the market. More than 7,000 companies have tried to raise funds for development in the last 3 years. There were many marketing specialists on the market, but the protracted crypto-winter left only the most effective ones. Here are some agencies that have resisted in the market and help raise funds for startups.
ICO Head is view on the constantly growing ICO world. They’ve created and are constantly updating three useful lists: Active ICOs, Upcoming ICOs and Ended ICOs for everyone who is interested in ICOs and wants to stay current on the topic. The lists look like a kanban board (Inbox, In Progress, Done).
ICO Hunter is an independent agency employing a team of blockchain experts. They specialize in making the rating for ICO projects. On the basis of their full detailed analysis, we estimate ICO projects on their rating system.
The goal of agency is to gather all the essential information about these projects and provide investors with insight, helping them make the right choice and invest in the best project. All the risks (scam, activity, etc.) are standardized according to a universal standard. Select projects receive their full analysis, which their team of experts provides for the good of the investors.
ICObench is an ICO rating platform and a blockchain community supported by a wide range of experts that provides analytical, legal, and technical insights to the investors.
ICOLaurel is an independent research team of experienced analytics and IT specialists. They are permanently searching for worthy projects they would invest our own money to, and they do invest because we are enthusiastic about cryptocurrency the same as you. They post a new project analysis daily to keep you up-to-date. Each decision to select a particular project to post is collegial, so you are protected from a biased opinion.
They are a team of blockchain enthusiasts and crypto asset investors who believe in the decentralization of power in society. Their aim is to make crypto asset investing transparent, easy to understand and available for everyone. ICO Dawn combines the qualitative and quantitative data with the wisdom of the crowd to better understand and evaluate crypto assets.
ICOgang is a platform that was established to provide its users reliable information about the best Initial Coin Offering projects and help ICOs attract more investors.
TrackICO — a platform that was established to provide its users reliable information about the best Initial Coin Offering projects and help ICOs attract more investors.