ICO is quick attracting interest from a wide range of investors. But at the moment ICOs is majorly attributed to the crypto world. Therefore, it would be difficult for it to take over Angel investors and venture capitalists roles.
An Initial Coin offering (ICO) is a concept derived from IPO, which is an Initial Public Offering. In IPOs shares of a private company are made public, and anyone from anywhere can buy and sell the stock. IPOs are one of the most synonymous ways corporations grow today.
People study the potential in a company and buy the shares with the hope that the company will grow in value. Therefore, the shares will be worth more.
But with ICOs the concept, being decentralized, is more of a cross between crowdfunding and IPOs. The reward to the investor is not in the form of share growth but in the form of Tokens which are usually cryptocurrency in nature.
Why ICOs is a great idea to replace Angel investors and venture capitalists
First way to raise money
Companies fear the gruesome process of pitching to investors time and time again. Mostly these companies care very little about you, and it is all about making maximum profit. This makes the process long and paper intensive. If the investor does invest at all, they make sure they can suck every penny out of the arrangement. ICOs, on the other hand, is more of a crowdfunding process, meaning many people will invest without batting an eye with the nitty-gritty of the company.
IPOs need security and surety. The investor needs to know even if your company collapses, they still do not make a loss. But ICOs are entirely different; there is no security and surety involved people just decide to invest.
Cryptocurrency is not regulated, making it a huge risk to investors, it also helps the companies looking to get investments access the funds easier. There is no third party involvement like lawyers and Angel firms; it is just an agreement between the investor and the company.
Due to the ease of investing, many people can join up with the company early. Therefore, make the venture more profitable if the business grows bigger.
Reasons ICOs are a long way from replacing Angel investors and Venture capitalists
With all the benefits that ICOs come with, there is still a long way before they can be considered a reliable means of financing a company.
IOCs deal primarily with crypto companies
Since ICOs are based on the blockchain system, companies that are invested in are majorly crypto base companies. With digital money companies, accounting for a tiny percentage in the business world Angel investors have a much broader field to play.
While the lack of security is a good thing for the company, the investor will be hard pressed to make just a random investment. After all the whole idea is to make money from the company you invest it.
Returns is form of tokens
With a small fraction of the world understanding cryptocurrency and an even smaller willing to get paid like this, many investors would shy away from ICOs. The process of changing Bitcoin to fiat is long and tedious and sometimes expensive. With many investors looking to make the maximum profit, such factors may scare them away.
ICOs are definitely a good idea that its time has come. But it is still a long way before it can replace Angel investors and venture capitalists in the market.