The Cryptocurrency Crowdfunding Guide For “Dummies” – A new era of startup crowdfunding is here. Initial Coin Offerings are part of every investor’s mind right now and everyone wants to invest today.
What Is Crowdfunding?
Crowdfunding is the means of financing adopted by small startups which need capital to finance their basic operations and overall development. One of the oldest and most traditional means of crowdfunding is through a traditional stock exchange IPO. In this method, you issue shares of your company and investors who buy it become owners and are entitled to profits made by the firm. This is quick and proven funding method which has been around for many years now.
While IPOs have been dominating the investor financing world for years now, it was thought that this would be the method of funding for many more years to come. Come 2016, and came along the concept of ICOs. The crowdfunding of startups with the help of decentralized cryptocurrencies. The Idea was appealing and started to gather everyone’s attention and the entire concept gained popularity like wildfire.
What Is a Cryptocurrency?
A cryptocurrency is nothing but a form of digital currency which is created and stored digitally in the form of blockchains. They utilize encryption techniques to overlook creation of these monetary units and verify if the transfer is valid or not.
It holds no physical form and is not exchangeable into any other financial asset like gold. It is also not regulated by any government or financial institution, thereby adding to the appealing nature of cryptocurrencies.
Some of the prominent cryptocurrencies are BITCOIN, LiteCoin, Ether, etc. amongst a host of others. To learn more about the different types of cryptocurrencies in the market, head over to Crypto Coins
What Are Initial Coin Offerings?
Initial Coin Offerings (ICO) are one of the most efficient means of raising capital by individuals and startup. It is an effective bypass method to raise capital without any sort of external regulation which is more of a financial burden at a time when money needs to come in and not be spent.
The entire concept is very easy to understand. People who take part in and ICO campaign are only investors who have certain amounts of cryptocurrency units like BITCOIN, Ether, etc., which they would like to invest. The ICO service provider will mine its own homemade cryptocurrency unit which will be sold to the investors in exchange for other cryptocurrency units.
The issued tokens hold a specific value in against say the BITCOIN and Ether which can be calculated by dividing the total number of tokens, that have gone public, by the total target capital which the company would like to raise through the ICO campaign.
Such a purchase of tokens can be treated as a contribution towards the overall development of the project, which is usually without a commitment from the ICO service provider. Based on the influx of the revenue, the success of the entire project can be determined.
ICOs are appealing to investors because of the sole fact that there is no regulation of any sort overlooking the funding campaign, hence, financers are willing to invest a small sum of funds initially which could end up yielding them returns to the tune of several thousands of percentages all in a matter of a few days or weeks.
If you want to know more about ICOs, check out this ICO List
Types of ICOs
What are the different types of Initial Coin Offerings which an investor could possibly come across?
- Organic Initial Coin Offerings
These are nothing but ICO campaigns of companies whose new projects are completely reliant on the use of blockchain technology. Hence, it is called as an organic ICO so simply put together, a blockchain project in its most natural form.
While these type of ICO are appealing, they tend to attract very fewer investors as the projects are relatively complex for any common person to understand. Since blockchain technology is still new and people are still at the stage of understanding what it is. Organic ICOs find it difficult to convince customers to invest in their projects.
- Artificial Initial Coin Offerings
An artificial ICO is nothing but a traditional equity round in disguise pretending to pose as an ICO offering. They disguise the entire process behind a whitepaper in place of their financing deck. These are companies who are finding it very difficult to raise funds through conventional means and seek other ways to fill their pockets. However, they are more like weeds growing in the world of Crypto Currency based crowdfunding. They are a nuisance which will not last for too long and will be fizzed out sooner rather than later.
- Synthetic Initial Coin Offerings
A synthetic initial coin offering some into existence when an already reputed and established player enters the fray. These are companies which already have a huge customer base and plan to make an entry into the world of cryptocurrency. By this, they gain access to free publicity and an option to expand their customer base as well.
Companies who are relatively new to the investor will have to expend some capital to win over the trust of the investors, however, already established firms can choose to bypass this step. This is because they already have an existing customer base and hence they can concentrate on building the critical mass of investors rather quickly.
- Fraud ICOs
These are the ICO service providers who pose as genuine project members but they are none other than a bunch of scamsters who are posing as a fake ICO with fake ICOs.
It is always advised to make sure that investors do not fall prey to such scams.
What Are the Privileges ICO Service Providers Are Entitled To?
- An ICO service provider has the liberty to define how much of funding they would like to accumulate and on how many tokens would they are issuing. This, in turn, defines the value of a single unit or token, which remains unalterable during the entire ICO campaign.
- An ICO service provider has the liberty to assign a value to every token that will vary as per the price of a single unit of BITCOIN at the time the token is issued to the public.
- The company can raise the funds without a maximum cap limit. However, the value of every token sold will be properly defined at the end of the ICO campaign, which will, in turn, depend on the amount of capital raised through the campaign.
What Are the Requisites to Run a Successful ICO Campaign?
There are a host of factors which determine whether an ICO campaign will be successful or not. Hence, a few requisites to ensure a successful campaign are as follows:
- Start from Scratch
It is always important to keep your foundation strong. The entire team must consist of leaders who have the right set of skills and finally, there must be a CEO who is good at managing teams and getting things done. There is also need for personnel who has acquired in-depth knowledge of blockchain architecture and most important of all, is a great financial buff.
Once this is set, the rest of the journey becomes well planned and will be free of possible downturns which could arise due to inexperience. A good team of people ensures a successful ICO campaign.
- Write a great Whitepaper
A whitepaper is nothing but business prospectus which furnishes all the necessary details pertaining to the technical and financial aspects of the project. It also describes the business model adopted along with the plan road map which makes it even more appealing to the investors. It is the primary most marketing document which you can use to market your ICO and attract more investors to your end.
- Build an online presence with a brilliant website
This is an important step to ensure that your ICO looks authentic and could potentially increase the investor’s trust, the seriousness of the company, and product feasibility as well.
- Consult experienced advisors in the field
Since every ICO project is backed by Blockchain technology, it is essential to possess the correct technical knowledge coupled with experience in the field. This can be done by consulting or hiring a team of technical advisors which will help the team save time and money and work towards ensuring a successful ICO campaign.
- Utilize Escrow Agents
Normal investors are given no sort of guarantee that their money will be returned. However, escrow agents provide the investor with an assurance that the project will be well audited and guided by a group of technical experts as well. Hence, for any further transaction, the ICO Provider must seek approval from the agent, which just shows that the project is progressing as promised in the white paper.
- Reach out to influencers
Every ICO campaign needs to be publicized well to ensure more a more investors flock to invest in your ICO. This can be done with the help of influencers who will help promote your ICO campaign to potential investors.
- Make sure your ICO is listed on an exchange
Making sure that your ICO campaign is listed on a reputed exchange is itself a huge achievement. There are a host of other ICO campaigns being run on reputed exchanges around the world.
While ICOs still remain relatively new to a lot of people out there. With the help of this article, a basic understanding of how crowdfunding takes place using ICOs will be established.
Guest article by ICO Token News
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