The connection between startups and investors go way back in time. Entrepreneurs have always been approaching investors to raise the required capital to run their business in exchange for a certain percentage of equity. On a later stage, they go public with an IPO, issuing shares that can be bought, sold and traded over exchanges. But such an investment model is gradually being phased out by the new-age technology startups.
Cryptocurrencies and blockchain technology are now some of the hottest technology segments, and startups working in these sectors are making use of the very technology to raise funds from the public.
The concept of Initial Coin Offering (ICO) or crowdsale has become famous in the recent years. The easy of creating, transacting and exchanging crypto-tokens. And the use of smart contracts to assign various functions to the token holders has further encouraged these businesses to rely upon the community to raise the much-required funds for product and business development.
The ICOs, which are similar to crowdfunding involves people (investors) buying tokens with either fiat or other well-established digital currencies. These tokens will act as shares, entitling the token holders to certain rights/control over the platform’s future. Meanwhile, the token holders are free to trade these tokens with others and exit their “relationship” with the company at any point of time.
The ICOs have a greater reach, appeal to a larger audience, and those who contribute to the crowdsale tend to become some of the early customers of these startups. The ICO stage, just like crowdfunding campaigns on Kickstarter and other platforms also act as a validation tool. Also, setting up an ICO is much simpler than going through all the hassles of going public with an IPO.
The changing fundraising habits haven’t escaped seasoned investors. Many have already invested in blockchain and cryptocurrency companies, mostly through conventional means. However, recently Tim Draper announced that he would be participating in an ICO, which is an indicator of the trend shift, which more investors are sure to follow in the coming days.
Ref: Yahoo | Image: NewsBTC