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Cryptocurrency for Beginners

What is an ICO in Crypto? (Initial Coin Offering)

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An ICO for a tech start-up is basically a website which costs under $100, a couple of people and a great pitch.

An ICO or Initial Coin offering used to be the most crucial milestone of a blockchain start-up as because it allow them to raise the capital to fund the company and the project for the next few years.

What is an ICO in crypto?

ICO (Initial Coin Offering) is the second phase in Blockchain start-up crowdfunding which allows retail investors to buy blockchain tokens at a discounted price before they reach cryptocurrency exchanges.

Blockchain tokens are minted by the founders and distributed to investors.

Recommended: What does it mean when a cryptocurrency is mined?

ICO Regulation

Crowdfunding has been around for decades but with the internet, crowdfunding has become more and more accessible to the world with websites such as Gofundme.com, Indigogo.com or Kickstarter.com.

This also means that more people can investors and can invest lesser sums.

Why crowdfunding

Tech companies, by nature, require a lot of to get off the ground.

For example, in August 2023, The Times of India reported that OpenAI’s ChatGPT cost $700,000 per day to run.

Remember that the most qualified software engineers don’t come cheap.

The products could take months to be developed and easily take years to before they reach the market so the high the capital raised, the more likely the start up will have enough funds to see the project all the way to completion.

Most start up businesses have a hard time to get funding from traditional sources because banks and financial institutions because banks, specifically the decision makers, do not understand the technology, how would they?

Banks only invest in what they can measure.

This is where it gets frustrating as well as interesting.

Here is a list of typical requirements by banks to provide a business loan

  • The have to understand the project (I dare you to try to explain content manager to bank representative)
  • The business owner has to prove that they have a steady source of income
  • There has to be a market demand
  • It has to be low risk –Banks usually have a list of sectors that are blacklisted due the volatility

It is the only way for some of these disruptive and game changing projects to get the necessary capital to become something where they would have otherwise failed.

ICOs also allow start ups to raise large sums quickly

Not all ICOs are scams.There are some very interesting blockchain projects.

The Initial Coin offering is first crucial milestone of a blockchain start up as this will allow them to raise the capital to fund the company and the project for the next few year.

ICO scams

An ICO for a tech start-up is basically a website which costs under $100, a couple of people and a great pitch.

However, during hype scammers take advantage of the greed of those who missed out on other unicorns.

Why most ICOs Fail

Not all ICOs are scams.

Sometimes, the business simply failed.

99% of start-ups fail within the first two years.

However, it’s sometimes easier to yell scam than admitting into a bad investment.

Here are some reasons completely legit blockchain products fail.

1. Too complicated product

If a project is too complicated or the problem or the problem ‘it solves’ is too complicated, even if the project is a game-changer, it might not have a market to to be sold to once it is ready.

Though innovation is very important, products that are too complex are likely to have a hard time to get investors.

2. Inexperienced CEO

Most blockchain startups are founded by software engineers.

However, there are more in and outs to managing a business and money.

Especially one which won’t be making profits for the next 2-3 years.

If investors notice that the team does not have strong enough players, they are likely not to invest in the ICO.

If the project does not have a power house as a CEO, that’s usually an indicator that they’re in it for the Bull Run hype.

3. Lack of hype

Hype can be defined as the excitement around a project.

The more the hype, the more popular discussion the project is likely to be.

This is essential to get investors interested in the project as well as give the event momentum.

Hype also allows for the project to reach a wider audience as well as a maximum investors.

Other related questions:

Softcap vs Hardcap

The minimum they have to raise to fund the project is the softcap.

The softcap is the basic minimum to carry out the project.

However, most ICOs aim to reach the hardcap which includes an additional budget for contingency plan.

Because ICOs are usually hosted in countries where cryptocurrencies are not regulated, it is important to choose ICOs is to remember that the start up is under NO LEGAL obligation to refund the money to the investors.

Bottom line

The Initial Coin Offering is just the beginning of the start-up’s journey.

The next step is delivering what they promised in their whitepapers.

With so many companies running ICOs, the competition to attract the investor’s attention has become more cut  throat than ever.

If you found this article useful, then you might be interested in learning more about Crypto Vesting, which happens before the ICO phase.

After that, I recommend checking out this interesting on Crypto Air Drops.

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