What if one cannot get a loan from a bank or an equity investment and family and friends do not have the money to support the person’s entrepreneurial project? In this case, the Initial Coin Offering (ICO) could become somebody’s best friend.
According to a definition by Harvard Business Review:
“An ICO is a new fundraising phenomenon fueled by a convergence of blockchain technology, new wealth, clever entrepreneurs, and crypto-investors who are backing blockchain-fueled ideas.”
More in particular, during an ICO campaign a firm creates a new digital currency and sells it publicly making the process similar, as stated by Investopedia, to IPOs (Initial Public Offerings) and crowdfunding.
Website CrytpoCompare claims that:
“Initial Coin Offerings can be considered as an alternative form of crowdfunding that has emerged outside of the traditional financial system.”
A Growing Trend
- Source: Google
In fact, data shows that ICOs have raised almost $1.8bn in 2017 while recent research by University of Cambridge confirms that the current number of unique active users of cryptocurrency wallets is estimated to be between 2.9 million and 5.8 million.
In light of this, earlier this year the Financial Times wrote that Michael Jackson, Skype’s former chief operating officer and now a partner at Mangrove Capital Partners, said that ICOs will “turn arrogant venture capitalists on their heads.”
However, there is more than that and it is all about access. Back in 1999, for instance, Noble Laureate Milton Friedman talked about the necessity of creating a reliable form of e-cash, as it would “make it even easier for people using internet.”
This represents one of the most interesting aspects of this story from an entrepreneurial perspective as ICOs make it easier for entrepreneurs to fundraise. This is also the reason why Japanese serial entrepreneur Taizo Son contends that ICOs will come to dominate fundraising. He told CNBC:
“Digital token sales democratize the fundraising process for start-ups.”
Therefore, in the midst of a dividing debate around the cryptocurrency bubble, owners of equity crowdfunding platforms argue that equity crowdfunding and ICOs will overtake traditional venture capital.
Indiegogo’s move is one that could potentially take ICOs mainstream. However, entrepreneurs need to be careful. In fact, if on one hand there are negative aspects linked to this revolution, such as the risk of scammers and hackers, on the other they will have to adopt a community-driven approach to be successful in their fundraising attempt.
In the end, blockchain, ICOs and cryptocurrencies are the new kids on the block in the world of finance. Thus, the debate will continue to intensify by presenting divided views and making it difficult to preview how the future will look like. Maybe the reality will be something in the middle. Nevertheless, companies will need a more mature ecosystem to thrive.
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