As an initial public offering where the company sells its shares on a financial market, an ICO (Initial Coin Offering) allows a company to raise capital from multiple sources. But instead of issuing shares or bonds, the company sells tokens created using Blockchain technology to raise funds for a new project by distributing a percentage of their tokens in the cryptocurrency market.
These start-ups who use this new strategy to raise funds do not need any third-party intermediaries and therefore they follow a model that is closer to crowdfunding than an IPO model, which has been abandoned by the tech-savvy generation. Even venture capitalists feel threatened by this new actor. Indeed, since the beginning of the year, $ 327 millions was raised through ICOs vs $ 295 millions from the Venture Capitalists.
Graph showing the evolution of funding sources for Blockchain projects (Venture Capitalist in gray / ICO in blue):
How does an ICO work?
– A company creates an ICO using a software platform compatible with Blockchain (Ethereum for example).
– The platform is powered by tokens based on cryptography, also known as cryptographic tokens.
– The company then writes a white paper to describe its project and ideally by highlighting a prototype to show its business model.
– The company subsequently organizes an event selling these cryptographic tokens where a part of its token capital is exchanged for cryptomonies (Ether, BTC ..) and money ($, € ..).
– Thanks to the raised funds, the company reaches its financing objective and therefore begins to develop its project and the investors themselves, see their tokens take value in the long term, and therefore a return on investment more or less important is theirs Assured – A true Win-Win strategy.
History and landmarks:
One of the first ICOs was that of Mastercoin, a metaphor on the Blockchain Bitcoin. This operation took place in 2013 and Mastercoin (MSC) managed to raise more than 5000 Bitcoin (BTC) which is equivalent to more than 13 million dollars.
The most famous ICO nevertheless remains the Ethereum, which raised $ 18 million in 2014 by selling tokens. This made it possible to open the way to this new method and to make it known to the public, although very limited because today this model is only known by the initiates and the community of the users of the cryptomonasies but due to the growing success of The latter, will echo the general public and in the media shortly.
Some popular start-ups and cryptomonies have followed this model and have managed to finance themselves by adopting this strategy, bypassing the so-called traditional « system » and avoiding the use of banks, Venture Capitalists etc. One can cite Numerous projects such as Brave, Gnosis, Bitshares, NXT, Augur, ANT, Tezos, Bancor, Factom, Monaco, iDice, TenX etc …
For example, Brave, a privacy-oriented Internet browser project, decided to raise funds in May this year, and thanks to ICO, the project was able to raise over $35 million from about 130 investors, in about thirty (30) seconds! Yes $35 Million in less than a minute, an incredible performance in terms of capitalization.
Gnosis managed to raise $ 12.5 millions in 10 minutes, Aragon raised $25 millions in less than 15 minutes, and on June 12 of this year Bancor pocketed nearly $ 150 million in 2 hours, nevertheless Tezos remains Up to now the biggest ICO, with a $ 160 million bonus swept into 32 hours (at the time I wrote this article, the ICO Tezos is still active and continues to raise funds).
In terms of return on investment (ROI), the results are equally staggering, and we can’t ignore the Stratis phenomenon: a start-up aimed at providing solutions to financial sector companies wishing to take advantage of Benefits of Blockchain technology.
The biggest return on investment for ICO is most definitely Stratis (STRAT), which had a return of 110.912% in one year. This means that if you bought $ 1,000 at the ICO, you would have $ 1,109,120 today. Millionaire in one year, this gives a lot of thought to investors of all sorts, and therefore fosters the success of this innovative financing method.
A scenario to illustrate these investments:
“We will say that you bought 10 ETH (Ethereum) in 2016 for a hundred dollars (about $ 100). Today, your 10 ETHs are worth about $ 3,500. It’s already a good start, is not it?
But let’s say that instead of doing nothing with your ETH, you decided to invest 5 ETH in the Gnosis ICO (GNO) last April. The price of GNO tokens doubled in a few hours of trading. If you resold your ETH after a few hours, you would now have 15 ETH, which is worth $ 5,250 today.
Here is a scenario, although theoretical, but very common on the ease of the gains to be made on the cryptocurrencies market.”
(Although this may sound like a speculative bubble, according to the most skeptical ones, this approach has nothing to do with financial speculation because these values are not indexed only to market supply and demand – Is legitimate – but they are also supported by their utility perceived by the companies and the users and therefore their value is real.When the Bitcoin exceeded the value of gold two months ago, – 1 Bitcoin is worth $ 2500 today – you have to start seriously to ask yourself the right questions about these new technologies instead of demonizing them. And if you’re wondering what the intrinsic value of Bitcoin is, here’s a concrete example: recently a $2000 Bitcoin transfer was made in 6 minutes with a transaction cost of only $0.25. If you find a better cost / speed in the market, keep me informed.)
In view of these unprecedented results, which are perfectly in line with the technological development allowed by the Blockchain, which is not at the end of our surprises in terms of innovative advances, many serious financial analysts are beginning to believe that Revolutionary strategies such as these could be the future of financial investment and fund-raising without intermediaries and in a completely decentralized way.
A tempting strategy?
Even so-called « mainstream » companies, or those not linked to the Blockchain, are entering the scene. Indeed, the Kik courier service, founded in 2009, plans to conduct an ICO this year, hoping that tokens will stimulate the fundraising for its platform.
The Asian start-up specializing in Fintech, Omise, also recently announced an ICO to raise $ 19 million, selling OmiseGO tokens.
One must be always Careful :
Although the ICO is an innovative tool in the digital age, investors should remain cautious and well informed about their investment choices as some ICO campaigns are fraudulent as these fundraisers are not regulated by financial authorities And that this happens in a very decentralized environment, funds lost through fraudulent entities can never be recovered. So caution is safe mother.
On the other hand, the Ethereum Blockchain which is in an early period of its business cycle naturally encounters some transaction difficulties due to the high demand during the ICOs, which recently gave rise to network congestion.
But the developers of the platform as well as the creator of the Ethereum, Vitalik Buterin are working hard to correct these shortcomings, improve the situation and make the network follow the growing number of transactions.