More money is now raised through ICOs than via venture capital, so it’s important to understand this new way of raising funds.
What is ICO?
An Initial Coin Offering is crypto’s unregulated version of a stock’s Initial Public Offering (IPO). Investors fund the development of a new coin or related crypto project.
In simple terms an ICO is using cryptocurrencies to crowdfund a new project. Developers can avoid the time and resources needed to try and raise funds from traditional means such as venture capitalists, banks or an IPO. A well managed ICO campaign can be both faster and more successful in terms of raising funds.
It’s easy to recognise the massive potential of ICOs, since start-ups and established companies can quickly release tokens to raise funds.
Ethereum led the way
Ethereum opened the door for ICOs and they’ve exploded in popularity in recent times to become one of the strongest trends in crypto. Ethereum has become a platform for distributed crowdfunding and the ICO model has helped many projects get many millions of dollars to start their business.
Successful examples of crowdfunding via an ICO include Filecoin, Tezos, Bancor, Augur and Golem. But the grand-daddy of them all is the $4 billion USD raised by EOS. They ran a year-long ICO and managed to raise a huge war chest for development and marketing of what they hope to be ‘Ethereum On Steroids’.
Access to ICOs can depend on your location and whether you are an accredited (aka sophisticated) investor. Their legality can be somewhat of a grey area, so get expert advice as part of your research. ICOs definitely come with financial and legal risks for investors.
Failure is common
Some investors are lured by the promise of high returns, but many ICO projects have already failed. Many more will fail in coming years since cryptos are risky, but ICOs are on a whole new level.
We’ll feature some ICO projects in articles, podcasts and videos at Ultimate Money. That will be a good starting point for interesting projects, but by no means is an ICO review or interview to be considered an endorsement of that project.
Like any investment you are considering, do thorough due diligence and seek financial advice where appropriate.
