Should Startups Launch An ICO To Raise Money
ICO is not a new word now. Every company who wants to enter the world of crypto is starting with ICOs. Have you read about Token Sale on twitter recently? I have and when you search a hashtag #TokenSale you get plenty of feeds who are launching their ICO and asking the community to join the token sale. For people who don’t know what it is:
Initial coin offerings (ICOs) are a new type of funding that has brought billions of dollars into the blockchain ecosystem, enabling difficult conventional funding vehicles like venture capital investments or business angel. Nevertheless, little is known about entrepreneurs’ motivations for utilizing this new form of financing. This article examines the economic and behavioral factors that drive startups to use ICOs to fund their startup operations.
Yes for startups ICOs have tremendous growth but there are challenges as well
There has been a significant rise and popularity for ICOs especially in the blockchain and cryptocurrency industry. It’s a fact that there are advantages in this model containing fewer regulations and rapid funding which may really act like a double-edge sword. Whereas if we talk about conventional models, the startups used to initially create a company, generate profits and then can take the road of funding form investors. But ICOs offer a shortcut and save time.
The rise of ICOs alone is more than enough to turn heads. As of January 2021, 5728 ICO projects have attracted more than $27 billion which means that startups are considering ICOs seriously and moving forward towards it. Nevertheless, these advantages are not enough to persuade numerous partners and investors.
Anything can happen in an open, unrestricted system, and when interacting with millions of dollars, “anything” isn’t precisely what you would want to hear. Indeed, the uncertainty of utility tokens, which results in differing rights, is one of the initial concerns for investors. There are also substantial risks, such as taxable proceeds.
What are the advantages of an ICO?
An initial coin offering (ICO) may appear to be the big opportunity to get a project above the ground for a startup. This could have seemed to be a simple, fast way to gain access to funding with limited competition. For instance, creating a token on top of the blockchain-based platform Ethereum may require less than 200 lines of code.
In a perfect situation, ICOs also produce buyer competition for the token — alike to crowdfunding, they give businessmen a concept of what consumers are prepared to pay for their service. This significant market understanding revealed by Catalini and Gans’ research is beneficial because it could boost entrepreneurial returns over and above what traditional equity financing can accomplish.
By distributing a token with no initial value, market strength can drive the hike prices if people are positive in a particular team’s capability to effectively build the platform they’ve promised to build.
Tokens can also assist startups in attracting new buyers and in encouraging application developers to create on top of a new platform.
With the successful Token Sale Manager platform my mind just came up with a few names like coinlist, Tokensoft, Indiegogo, ICO Engine and LCX. Recently I got impressed with the NFT-Maker concept of building a NFT ecosystem on Cardano. Isn’t that amazing? They skipped the ethereum and chose Cardano over it. A new platform with new blockchain. When I deep dived into the details, I came across the fact that they are conducting a token sale of their first ever token $NMKR and they choose LCX tokens ale manager for that. When asked by the community why LCX they simply replied that it’s easy to find a platform that offers the similar service but it’s hard to find one that is regulated and is licensed. With all the advantages attached to ICOs companies be it startup prefers to opt for regulated token sale manager.
While we have gone through the advantages of ICOs, let’s have a look at the disadvantages as well. Because no strategy, no technology is perfect.
There can be a situation when at some point of time the regulators will begin to chase you but if you go with a regulated token sale manager like LCX then this situation can be handled. Going further, you raise so much funds in the volatile market that there is always a risk of losing. Plus the ICOs investors are less patient and if there is a communication gap then things may turn out to be bad.
The community can put a lot of pressure on you to make progress. After all, you just took a million dollars out of their wallets.
I believe that start ups must try ICOs but they must choose a regulated and licensed token sale manager for conducting their token sale.