Cryptocurrencies are now finding an attractive use case in the startup ecosystems., But this time it doesn’t concern Bitcoin or other cryptocurrency related products and services. Many technology startups across the world are gradually shifting to cryptocurrency crowdsales and ICOs for raising the much-required funds.
The ICOs and crowdsale, where individuals and institutions opt to buy cryptotokens issued by a startup or a project makes fundraising much simpler for entrepreneurs and reduces the risk burden associated with investments into startups for venture capital and angel investors. The shifting trend also has a name, “Token Economy”.
In most cases, a majority of the funds raised by the companies opting for an ICO comes from thousands of individual investors, summing up to millions of dollars in the form of various cryptocurrencies. In return, these investors receive cryptotokens, which can be traded for other cryptocurrencies or exchanged to fiat in the future. Some startups also offer additional perks to early participants, as an incentive and a symbol of appreciation for their belief in the product/startup.
A leading financial news media outlet has quoted Balaji Srinivasan, the founder of 21 Inc., and partner at venture capital firm Andreessen Horowitz saying,
“[token-based systems] may eventually create and capture more value than the last generation of Internet companies.”
The extent of influence exerted by cryptocurrencies on mainstream tech businesses is made evident by Kik Interactive. The company behind Kik multiplatform chat application recently announced its plans to introduce Kin cryptocurrency that can be used for in-app fund transfer and purchases. The platform will be soon launching an ICO for its tokens. The ICO will not only help the platform launch a new feature but also raise the required funds to establish and maintain liquidity.
The reduced regulatory headaches associated with ICOs and crowdsales also make it an attractive option for startups as they don’t have to navigate through the legal red tape and other issues just to raise funds required for sustained operations. However, the article also warns about few exceptions, where certain ICOs and crowdsales may be subject to regulations if the tokens are seen as an equivalent to equity/shares of the company.
To prevent any confusion, startups opting for an ICO are suggested to create carefully tailored campaigns which state the intentions and mode of usage of tokens thus procured by the investors.
The adoption of cryptotokens by entrepreneurs and startups as an alternative to conventional fundraising techniques not only helps them take a decentralized approach. It also encourages increased adoption of altcoins and blockchain technology across industries.
Ref: Fortune | Image: NewsBTC