Thinking about raising money for a venture, or investing in one?
If you are, you’re usually looking for an Initial Public Offering (IPO). This is something you initiate as a startup to look for money. Also, it’s something you look for as a value investor.
But what about different forms of fundraising?
IPOs aren’t the only gateway for startup investments. In fact, with the rise of cryptocurrencies, we now have an easier way of raising money.
That would be an Initial Coin Offering, or (ICO).
Raising Money for a Blockchain Project
This is where ICOs kick in.
To start a blockchain project means you’re starting a cryptocurrency venture. And you need to raise money and funds for that venture.
But cryptocurrencies are relatively new to the world. And they’re not readily used by established companies.
This means that many investors may be sceptical to approach your venture.
Regardless, this leads us to the 1st difference between ICO and IPOs…
You Can Raise Money for a Start-Up.
The ICO you start does not have to be for a company that has been successful for years. In fact, your company may be a startup, with no profit records whatsoever!
But, if you’re a startup seeking to get funds through IPOs, you might suffer some bad luck.
You may have to seek dozens of investors, with perfected sales pitches, simply to get the funds you need. Thus, it is easier to raise money through ICOs.
To get an ICO, you don’t need to show profits, nor do you need a ready-made product!
But, do note that the ease of getting ICO’s comes with disadvantages that may make an IPO better…
Regulation Differences Between IPOs and ICOs
Blockchains are computer regulated by nature.
The idea of cryptocurrencies is to decentralize currency values. For that reason, cryptocurrency markets in general have low regulations.
This also applies to ICOs. You don’t need excess documentation to set one up. Also, there are no security guidelines that you must follow and respect…
Thus, as a startup, you don’t need meticulous knowledge of paperwork. Also, you don’t need tight inspections in your enterprise activities.
This means you can focus more energy and time into your operations, and less on regulations.
But for investors…
This can make ICOs lucrative, but dangerous for investors.
With reduced regulations on ICOs, there is a higher chance of being scammed. This applies especially to startups that lack a history, and operate out of concepts.
As an investor, you should be cautious when investing in an ICO.
Always Factor in the Rewards of ICOs…
If you’re an investor, an IPO will likely give you dividends. Also, you risk less capital losses on an IPO.
But for an ICO, your gains are in share value. Your gains are in the increased value of your investment…
Think of it this way. IPOs are best suited for low risk, low reward investors. And ICOs work best for risk takers that seek higher rewards, and play on volatility.
Shares in ICO companies tend to be more volatile. This has to do with the newness of cryptocurrencies, and also ICOs as a new method of funding.
As a trader, this makes ICOs suitable for quick profiting.
But for businesses…
ICOs work best for startups that want to take risks.
If you want to test new ideas, without worries about ruining your reputation, go for an ICO. As a startup starting an ICO, you can afford trial and error more…
You do not have an establishment’s reputation to risk.
But if you’re a larger company or one in a heavily regulated industry, you should work with IPOs.
Acceptability Differs From One Country to Another…
Take a country like China as an example.
As of September 2017, the Chinese government banned the issuing of ICOs. This was on grounds of ICOs causing “instability” in the Chinese economy…
But other countries (like Australia) may accept ICOs. Especially with the current prevalence of cryptocurrencies on the world stage.
As for IPOs, they are acceptable everywhere.
IPOs are at the core of raising capital for established companies. After all, IPOs are what the stock markets are built on…
So expect IPOs to be acceptable and available everywhere. But, do not expect the same for ICOs.
Before issuing an ICO, or investing in one, ensure it conforms to the law of the land. After all, you don’t want to be penalized for what can be an illegal investment…