What is an ICO?
An ICO is essentially a crowdfunding round that uses crypto-tokens instead of traditional currency. An ICO is like an IPO (Initial Public Offering) but without the many layers of regulation associated. That can mean funding rounds of £20M+ with only a team and a whitepaper.
Unlike VC or an IPO, buying a token does not necessarily entitle you to a share of the company, only the project the ICO represents. This is a tradable Kickstarter commitment that shows an early interest in a project and its application.
Moreover, anyone can release a coin or ‘token’ claim it has value and takes everyone’s money and people have been stung by these fraudsters. But, while it may be the wild west for regulation, these offerings give opportunities for small businesses and startups to quickly test their idea and get a temperature on how much people are willing to pay for their solution, or even better, get a huge round of support (like a Kickstarter) before they have to spend hundreds of thousands of dollars on developing their final product.
Compared to conventional funding routes (i.e. IPO, VC, loans, etc.), crowdfunding is fairly easy to set up, and can be the perfect platform to test your market assumptions and interests, or create enough noise that marketing becomes organic before you’ve even finished the product.
Put simply, an ICO is a way for a company to raise cash quickly without going through a conventional auditing and regulation process. However, many people have raised serious concerns about its security.