Raising Capital Through ICO

An ICO can be compared to an Initial Public Offering (IPO). ICO grew in popularity in 2017. Typically, companies that use ICO raise capital by selling tokens, which are digital assets built on the blockchain. These tokens are also known as protocol tokens, utility tokens, and app coins. Similar to how equity is allocated to stock in a publicly listed company, a startup can assign a certain amount per coin.

Undeniably, adequate capital is an essential requirement for managing a company. Companies need money not only to grow but also to ensure that their business operations run smoothly.

Startups typically have various fundraising options, including crowdfunding, investor rounds, bootstrapping, and much more. Hence, an initial coin offering (ICO) is an innovative option to raise capital for your company, which is rooted in cryptocurrency. A company can initiate an ICO to raise capital to develop a new coin, app, or service.

The underlying idea behind how ICOs work is to generate capital by creating and dispersing tokens using blockchain technology. Investors that contribute money will receive cryptocurrency from the project in exchange.

The Ethereum blockchain, which was created to support decentralized apps, is often where most ICOs are hosted. Usually, a “token sale” or “crowd sale” describes the term for the sale of these tokens.

                        Types of Initial Coin Offerings

Knowing the type of ICO suitable for your project is crucial as it determines the type of token to offer, whether utility or security tokens. 

Pre-release Initial Coin Offerings:

This is more common and can be done using virtual reality, digital currency, or both. Here, Utility tokens are offered to the investors. Generally, you offer utility tokens, also known as “user tokens,” when a project requires funding to create a good or service. Furthermore, they are used to grant users access to your product or service in the future, much like pre-orders.

A post-release initial public offering

This happens after a project has been released but still requires funding for ongoing development. Here, security tokens are issued. Although security tokens are mostly governed by laws and serve as a representation of the company’s shares.

Why Raise Capital through ICO

Active participation

Unlike traditional funding methods, an ICO raises money for a project while enlisting community support. Consequently, it gives the business more room to develop and show its originality. Because of how the ICO works, the community will also feel more connected to the project. Hence, ICOs attract early adopters who support your success by uniting the early user base.

ICO saves company shares for the future

Unless explicitly stated in the smart contract, merely buying tokens does not confer ownership rights on token holders. Thus, the ability to reserve shares is a significant factor in why companies choose ICOs. Companies that choose an ICO might “save” their business shares by selling tokens to raise further funds in subsequent rounds. For startups, it is an excellent long-term strategy.

Liquidity

Tokens are offered for sale on a 24/7 global market. Hence, you can quickly sell a token if you hold one.

General Procedure for Launching an Ico

Create your idea, then determine whether or not an ICO is required:

This is because, for your project to succeed, it must provide a solution that the market currently needs, objectively superior to what your competitors offer.

Assess the legal requirements and jurisdiction

The most regulated part of cryptocurrencies is ICOs because many ICOs have shut down, disappeared with the money raised, or have been revealed as scams. Only China and South Korea have formally outlawed ICOs in their respective countries. Hence, you must be familiar with the present cryptocurrency legislation and closely monitor any upcoming changes to avoid going against the regulatory requirements.

Create an ICO token

Determine the number of tokens to be issued and distributed among your team. Also, evaluate the number to be sold to the public at each step of the token sale. Finally, choose the situation in which you will issue more tokens.

In terms of Ethereum’s ERC20 tokens, creating the token itself is a relatively simple operation. Even the necessary code is listed on the Ethereum website. However, the customization of some crowd sale logic for your tokens might be more challenging, so if you are not tech-savvy, think about hiring a specialist to accomplish that for you.

Publish a white paper

Startups participating in ICOs typically publish a white paper. A white paper is a primarily technical document that details every aspect of your project, including market analysis. It also outlines the concept and token usefulness.

Develop a website

The website should include the team, the project’s objectives, and the measures put in place to protect the interests of investors. 

Launch your ICO

These startups sell the tokens through a decentralized exchange or their website. People who want to buy these tokens will trade money, but more frequently, cryptocurrencies like Bitcoin, Ethereum, or USDC for the tokens.

Conclusion

Initial Coin Offerings (ICOs) give blockchain businesses a fascinating new route to raise capital for their initiatives. Interestingly, ICOs could raise tens or hundreds of millions of dollars for your startup. However, it necessitates a considerable degree of community development, technological know-how, and regulatory compliance foresight. Hence, weighing your options when going through the ICO route is very important.