Every day, new companies and so-called entrepreneurs appear in the market. They still find a lack of the needs of the society and provide new services and innovative technologies. There are a lot of such companies, and although not all of them will be successful in the long term, some of them are gaining world fame and become flagships in a particular business area. But it is not enough to see the need or to invent innovative ideas. To implement or develop any project, the founders of companies need investments. We propose to consider two very close options for attracting investment: ICO and IPO.
ICO (Initial Coin Offering) – initial public offering of coins – tokens, in fact, is the conversion of digital tokens into fiat money or cryptocurrencies. In the role of buyers are investors. ICO projects are related to the concepts of blockchain and cryptocurrency.
IPO (Initial Public Offering) – an initial public offering or placement – the first public sale of shares of a joint-stock company, including in the form of the sale of depositary receipts for shares, to an unlimited number of persons. Sale of shares can be carried out both by placing an additional issue of shares, by open subscription, by public sale of shares of an existing issue.
If we consider both phenomena in a broad sense, it is not difficult to notice that in both cases funds are raised for the development of a particular project. Investment income is a key target, both IPO and ICO. In this, both investment procedures are similar.
However, the IPO procedure, which arose in the West during the time of the formation of large private capital, takes place within the framework of long-established market rules and legislation. In fact, an exchange IPO is a respectable form of crowdfunding with a high entry threshold for sponsors and companies, requiring interaction with a broker and arranging a listing procedure and is more suitable for large, serious companies with a proven financial history and business reputation.
To enter the IPO, the company requires the preparation of a prospectus of securities. This is a legally valid statement of intent to publicly issue shares with the provision of necessary information about the company, including a description of all risk factors. The company usually hires several investment banks (underwriters) to conduct an IPO. Further, these underwriters work with the company to understand what securities need to be sold and how much investment it will attract and prepare a preliminary prospectus. The document provides investors with company information, including enterprise plan, ownership structure and management instructions, financial documents and strategic initiatives.
In turn, ICO is a tool by which any developing company can sell digital tokens to finance their business processes and achieve other goals. In the large sense, to enter the investment crypto platform you only need to write White Paper – this is a special document that governs the basic details of the project, indicates the intermediate goals that must be achieved, determines the number of tokens issued for fundraising, and describes what percentage of assets the creators planning to keep. However, there are many pitfalls in the ICO and it is very difficult to obtain real investment.
Thus, the process of attracting investments through ICO is much more convenient, but no less complicated.
Obviously, the development of ICO is one of the promising areas of financial development.