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More than $8.8 billion USD[1] has been invested in Initial Coin Offerings (ICOs) in the last 2 years, which is an incredible amount of funding given how new and disruptive the ICO concept is. While the numbers are undoubtedly impressive, the nascence of the ICO process has produced varied opinions and regulations across geographic regions.
With all the buzz surrounding cryptocurrency- both negative and positive- many blockchain companies are evaluating the benefits of an ICO to determine whether this method of raising investment dollars is right for them.
What is an ICO?
ICOs sell off small units of value in exchange for capital investment to fund project development. Rather than selling off shares that represent ownership of the company, an ICO sells a new type of token or coin, tracked via blockchain technology. These tokens can be used to purchase goods or services from the company, and eventually as the company grows, the tokens can be traded on certain exchanges that handle cryptocurrencies.
Companies that launch an ICO harness the power of individual investors incentivized to act as brand ambassadors; the more people investing in the cryptocurrency, the more the value of the currency increases.
It is important to note, an ICO does not have mandatory legal requirements to issue or submit any type of legal paperwork. Currently, companies only need to produce a Whitepaper in order to launch their ICO. No formal prospectus process- just a paper detailing their plans for the company, and their promise to investors who purchase their currency. Understandably, securities and commodities regulators have had serious concerns about the representations and promises being made to consumers, voicing the need to identify scams and fraudulent claimants. As such, some countries like China have altogether banned ICOs, while countries like Malta have allowed them but implemented certain regulations.Currently, if an investor buys tokens through an ICO and lose money, there is generally no legal recourse to recover those funds.
What makes a successful ICO?
Statistics suggest that trust in cryptocurrency is currently at an “all-time low”, with nearly half of Americans surveyed stating that they will never invest in digital currency[2]. It’s clear that the world economy is still at an early stage of adoption, with some investors and startups eager to jump in on a new opportunity, and others hesitant to test seemingly turbulent waters.
And so, the question boils down to: If a company chooses to conduct an ICO, how do you gain the trust of investors? What’s the best way to establish your reputation as a responsible, intelligent investment? And in which geographic regions are you most likely to make the impact you’re seeking? One thing is for sure: You’ll need the backing of an expert team, prepared to offer you strategic support, guidance, and actionable insight based on an evolving set of industry best practices.
Zeifmans: Your trusted business advisor
Whether you want to remain a private blockchain and/or crypto based company, consider an ICO, the team at Zeifmans is here to guide you to the best choice for your startup. In addition, our affiliation with Nexia International enables us to offer a global contact base to growing companies looking to explore new market opportunities.
To learn more about how our 1:1 support can lend a hand throughout your business life cycle, contact our team today.
[1] Forbes, “What You Need to Know About Initial Coin Offering Regulations”, https://www.forbes.com/sites/jonathanchester/2018/04/09/what-you-need-to-know-about-initial-coin-offering-regulations/ – 7209aa762f13
[2] Blockonomi, “41% of Americans say they’ll never invest in Bitcoin or other cryptocurrency”, https://blockonomi.com/americans-cryptocurrency/
