Initial Coin Offerings (ICOs) have seen a meteoric rise in 2017; resulting in $2.3 billion being raised to date as block-chain companies turn to the cryptocurrency community. As the popularity of ICOs continues to grow, it’s important that organisations understand the range of benefits, both for companies seeking investment and those looking to invest, the ICO model provides compared to traditional investment avenues.
Those seeking investment
For organisations looking for investment, an ICO is considered a much faster and easier fundraising method to undertake as anyone can start one. Additionally, the online nature of an ICO means that marketing and settlement costs are significantly lower than traditional fundraising with settlements finalised through the blockchain.
An ICO-funded startup also benefits from a network of supporters, similar to traditional crowdfunded businesses, whereby those supporters hold tokens that increase in value based on usage.
Those looking to invest
Many investors are attracted to cryptocurrencies for their liquidity. Rather than playing the long game and investing vast amounts of money in a startup which is then locked up in equity of the company, ICOs offer the opportunity to see gains much quicker and can take profits out more easily.
A significant advantage of an ICO for investors is that it is open to everyone. Traditional venture financing tends to be geographically limited to financial hubs such as New York or London. However, an ICO removes this limitation and opens up opportunities for anyone in any geography. This democratisation essentially allows anyone to contribute.
In addition, cryptocurrencies can appreciate much faster in value. For example, Bitcoin was worth $100 in 2013 and in September 2017 was trading between $4,000-$5,0000. As well cryptocurrencies from Blockchain startups Monero and NEM both saw huge increases in value at 2,000% increases. Therefore the potential ROI for investors using cryptocurrency is much higher.
Whilst there are benefits to investing in an ICO, there are also a number of risks associated with this kind of investment including; an unpredictable market, volatile token valuations and a lack of a formal process to audit an ICO organisation. Before seeking to invest in an ICO, you should always look for professional consultation from an industry expert.
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