Cryptocurrency market has been experiencing a huge surge of Initial Coin Offerings (ICO) for the past 6 months, though a lot of experts call it another bubble. Let’s take a closer look at this phenomenon.
When Bitcoin first appeared, nobody took it seriously. They said if one had to choose between a hamburger and a Bitcoin, he’d prefer a hamburger.
Today 1 BTC equals $10,000 and keeps on gaining its weight. Following good old Bitcoin success, a lot of other cryptocurrencies appeared. Ether and Litecoin are almost as much popular as BTC and tend to grow rapidly. This positive trend motivates startups to present their own tokens.
Initial Coin Offering became an easy way to raise funds for a startup in comparison with a standard crowdfunding campaign or a venture capital investment. VCs rigorously examine your busines plan, roadmaps and graphs, and in the end they always say pretty much the same: “you’re too early for us - show $1M revenue per year and the fund will invest $10M”. Certainly, it’s a prerogative of any venture fund to protect the money it invests, but then again it’s a vicious circle. Any young startup is in need of early financing to go off at a dash in the very beginning. With no early-stage investment any brilliant idea or software takes a risk to fail.
In this case ICO is a great chance to make the wheel spin, because ICO isn’t just the mechanism for new coin issue - it’s the fundraising process for a startup too. And the best part of it is that a startup doesn’t sell its shares at all. Venture capitalists usually take a big part of shares in return of their investment and often interfere in a startup’s development strategy. VCs want fast profitable return of their investments during a short period of time, and for that reason they often push founders of a startup to an exit. The before-mentioned scheme is impossible in ICO.
A lot has been said lately about the necessity of cryptomarket regulations, but sure enough there’s nothing more than banks crediting less and venture capitalists getting less investment proposals behind those regulations. If there’s a demand on something, there will always be a supply. It’s a simple rule of economics. Today young startups can hardly break the VCs’ wall, and therefore ICO is a shorter way to the successful fundraising.
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