Initial Coin Offering — ICO
by Saverio Saitta
Choosing the best way of financing your company
With this article I want to give some advices to all entrepreneurs that are looking for new ways of financing in the web 3.0 world. In the previous articles, we read about security tokens and utility tokens as two different tools for two different goals: the first can be can be considered as an ownership contract (something similar to a share of a company), the second does not only serve as a tool that stores the value but it also grants the access to some services and networks (like a gold key).
Now, let’s keep in mind this difference between the two cryptoassets and move forward to Initial Coin Offerings, aka ICOs.
An ICO is a a fundraising mechanism in which new business projects sell their underlying crypto tokens in exchange of either conventional currencies (dollars, euros, etc…) or Bitcoins and Altcoins (that is, digital currencies).
Therefore, a business decides to go for an ICO mainly when:
it needs to raise money it desires to have funds in a short time period its business is blockchain-based or blockchain-related it does not want to loose shareholding ownership it does not want to comply with SEC regulations (true, but only for utility tokens)it does not have the necessary dimension for running an IPO (companies with EBITDA> $1 million, distributing dividends and skilled expertise).
ICO VS IPO
The last point in the previous list is particularly important. An ICO grants little businesses “to go public” in a similar way as an Initial Public Offeringbut with a paltry investment compared to IPO. Here, I wanted to show you a comparison between ICOs and IPOs, presenting some Pro’s and Con’s of both:
expansion of the business
increasing security’s liquidity and marketability
fundraising for investments
increasing company’s credibility
attracting top talents
exposure to market fluctuations
dilution of shareholding ownership
obeying to formal and substantial requirements
long and arduous processonly for established companies
maintaining shareholding ownership
easy process structuring
speediness in raising huge amount of money
startups and small companies tool
raising money pre-product (speculative)
missing clear regulation (grey area)
early stage technology
matters of security/privacy
require experienced professional
Now, it is quite clear that ICOs and IPOs satisfy different needs and place themselves into different business lifecycle stages. But if you are a young entrepreneur with a smart idea related to blockchain, you have a good team and you need to raise money, the ICO can be your right way forward!
Building an ICO from scratch
In this paragraph, I will limit myself to resume the fundamental steps to follow in order to complete an ICO process. For detailed information, I highly recommend you to read thearticlewritten by Olga Hryniuk.
Let’s see what are the steps for an effective ICO process:
Decide if an ICO is the right choice of alternative financing
There are different ways to finance your company and it is fundamental to evaluate whether an ICO best suits for your company. Remember: The business has to be related to cryptocurrencies.
build your team You cannot manage everything alone.
develop the back- end structure it is time to build up the token.
Prepare the white paper this is extremely important to investors. you have to consider it as your business plan, useful to attract investors and present your idea in a detailed manner.
Prepare the roadmap this activity will plan the timing and set of activities to complete the entire process.
Provide security Since with the ICOs investors risk much more than on usual investments, it is necessary to offer more guarantees, especially in a market where risks of losing your raised funds is considerable.
ICO marketing Similar to anchor marketing in IPOs, even during an ICO marketing is fundamental for placing the offer to investors.
Choose the right ICO platform In this case, you do not have a physical stock exchange where to trade your shares but you have several online platforms where supply and demand can meet.
Finally, it is important to remind yourself who you are as an entrepreneur, what you want to become and what you need for your project. Here, there are two different ways of financing but one does not exclude the other. In fact, a company may decide to use ICO in its development, seed and startup stage and then going for an IPO. ICOs are an amazing opportunity. As a matter of fact, companies like Aragon raised $25 million in 15 minutes and Status.im raised $270 million in few hours: incredible amounts in a blink of an eye!