ICO (initial coin offering) is a crypto-analogue of an IPO (initial public offering), in fact, a new model of crowdfunding. At the ICO, young projects attract investment in the form of a crypto currency for the successful launch or further development. Instead of shares, the company produces tokens in limited quantities. Investors cannot influence the development of the company in any way; however, tokens can be used for purchasing different products, for paying company services or trading on crypto-exchanges.
IPO (initial public offering) is the very first sale of stock issued by a company to the public. Prior to an IPO the company is considered private, with a relatively small number of shareholders made up primarily of early investors (such as the founders, their families and friends) and professional investors (such as venture capitalists or angel investors). The public, on the other hand, consists of everybody else – any individual or institutional investor who wasn’t involved in the early days of the company and who is interested in buying shares of the company. Until a company’s stock is offered for sale to the public, the public is unable to invest in it. Public companies, on the other hand, have sold at least a portion of their shares to the public to be traded on a stock exchange. This is why an IPO is also referred to as “going public.”
There are 6 main differences between ICO and IPO:
- Time of return of investment: 1-5 years of ICO against 7-10 years of IPO. There are exceptions. Approximately 10 ICO-projects for 2016-2017 brought return of investments from x10 to x100 for several months. Investors play a big role in the soon growing value of the token. After the release on the market of the ticker of a startup, all users who purchased it on the initial offer began actively selling these tokens in the hope of making a profit. Therefore, the term of investment return can take several years, less often months. It is necessary to remember this when investing in a new project with the hope for a month to receive a large return.
- Instead of shares and rights to a part of the company in an IPO, in ICO the investor receives tokens, which are only a functional unit, and are intended solely for use within the platform and trade. In addition, tokens are not regulated by law.
- Differences in investment rounds: in the IPO, this is the seeding and investment rounds of A-F. In Initial Coin Offering – pre-ICO, ICO, listing on crypto exchanges and the final implementation of the model.
- Startups on IPO invest primarily in the development of the economy of a particular state, while the blockchain startups are developing a decentralized digital money market.
- The legal status of a company on an IPO is regulated by legislative norms in a certain jurisdiction. ICO does not have an organizational legal structure and operates solely on the trust of depositors.
- Unlike an IPO, in ICO any person can invest in a start-up business without venture or family funds, avoiding any restrictions.
