How ICOs are Disrupting Venture Capital and Crowd Funding

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• published: 12 Jun 2017
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We’re at the beginning of a new golden era. The market capitalization of Blockchain-based tokens is growing at a fast pace, threatening to disrupt the venture capital industry. The traditional way of raising money for a startup involves the creation of a business plan, angel investors, multiple rounds of funding and, hopefully, an exit strategy for the investors through an IPO. But, the growth of cryptocurrencies led to the development of alternative financing methods, namely ICOs. The main benefits of ICOs are that they provide funding to the startup team to develop and launch their project while also incentivizing the community to invest. If the project succeeds and your tokens increase in value, you can sell them and make a profit. How much money can you raise through this new form of investment? A lot! Just in 2017 alone, ICOs raised over $100 million in just 15 deals. And, the entrepreneurs didn’t have to go through rounds of negotiation and wait for months to raise the capital they need. One Blockchain startup raised $16.8 million in just 30 minutes. More and more people are starting to see ICOs as a fruitful alternative to the traditional way of investing. The good news for you is that, in spite of its growth, ICOs are still a new phenomenon so you can still jump on the bandwagon before it gets too crowded. ICOs Are Similar to Crowdfunding In a way, ICOs are every similar to crowdfunding campaigns. Entrepreneurs pitch their ideas on a Blockchain platform application or digital currency, such as Bitcoin or Ethereum, and people decide whether they want to invest or not. Similar to crowdfunding campaigns, entrepreneurs don’t give up equity, but tokens (cryptocurrencies). Investors can then hold on to these tokens or sell them on cryptocurrency exchanges within days or weeks of the crowdfund ending. There are a few noticeable differences, though.For starters, because the ICOs happen on blockchains, they benefit from the advantages of this digital ledger. As you probably know already, blockchain organizes data in batches called blocks instead of using a central administrator such as a bank or government. Likewise, ICOs are decentralized with no single point of failure or middle man being in control. For starters, because the ICOs happen on blockchains, they benefit from the advantages of this digital ledger. As you probably know already, blockchain organizes data in batches called blocks instead of using a central administrator such as a bank or government. Likewise, ICO blockchain products are decentralized with no single point of failure or middle man being in control. No Need to Give up Equity The beauty of ICOs is that they allow startups to raise money without giving up equity or stock in their business to shareholders. So, the same startup that would have to renounce 10% of their share on Shark Tank can raise the $250k on blockchain while giving up 0% ownership of the company. ICOs Are Currently Unregulated by Most Laws I’m no stranger to investing and let me tell you right here, right now that you need the patience of a Buddhist monk to wait for an IPO. That’s because the government and companies heavily regulate IPOs and companies need to go through a lot of paperwork before they can become public. Crowdfunding is no stranger to bureaucracy either. The final version of the JOBS Act has no less than 685 pages! Fail to comply with the rules, and you must suffer the consequences. More Liquidity for Investors Than Venture Capital or Angel Investing If until recently the venture capital industry has been treating Initial Coin Offerings like a fad, they are now starting to pay attention to this alternative funding model. For starters, cryptocurrency investors have made huge returns in 2016, with some blockchain startups like NEM and Monero seeing up to 2,000% increases in their value. For example, Ether (the cryptocurrency used for the Ethereum blockchain) has doubled its value numerous times, within days or weeks. So, those who have bought Ether have more than doubled their investment in just a few days. You can’t see this kind of return with traditional investments. Another reason VCs are becoming more interested in ICOs is that they offer more liquidity than a traditional investment. When a venture capitalist or angel investor buys equity in a company, their money is tied up in the investment. They cannot pull out or sell their share until the company has an exit, whether through an IPO or until another company buys them. And, that can take years. http://ianbalina.com/hacking-venture-capital-making-millions-initial-coin-offerings-icos Website: http://ianbalina.com Instagram: https://www.instagram.com/diaryofamademan/ Twitter: https://twitter.com/diaryofamademan Snapchat: https://www.snapchat.com/add/diaryofamademan