Initial Public Offering (IPO) has been around for a very long time, unlike Initial Coin Offering (ICO) which dates back to 2013. ICO took the startup scene by storm in 2017 and is predicted to increase in 2018. With the increase in popularity for ICO, do you know the differences between the two similar-sounding abbreviations?
Initial Public Offering (IPO)
An initial public offering, or IPO, is the stock sale by a company to the public. Before a company chooses to go for IPO, the company is considered to be privately-owned as its shareholders are the founders, friends and families, venture capitalist and angel investors. “Going public” in an IPO allows anyone in public to be a shareholder of the company. You can end up with having thousands of shareholders and that’s normal.
An initial public offering, or IPO, is the stock sale by a company to the public. It could have been around as far back as the 1820s when the stock market began, but it can only be traced back to late 1920s in the United States.
Who goes for IPO?
Companies who wish to raise huge amounts of money and have more liquidity. Going for IPO has its perks of being on listed on the public stock exchange, which can be considered prestigious.
- Raise huge amounts of money
- Increase prestige of company
- Possibility for lower interest rates when issuing debt
- Strict rules and regulations that need to have adhered.
- Requires a board of directors
- Disclose its financial and accounting information to public
Initial Coin Offering (ICO)
An initial coin offering, ICO, is another means of raising money, where companies sell their crypto tokens at a discounted price in return for fiat money. Unlike IPO, companies that choose ICO raises money without losing ownership of the company.
ICO is relatively new since the first accounted ICO was back in July 2013, for a project called ‘Mastercard’. It was a slow growth at first but picked up quickly in 2016-2017. Based on coinschedule, there was 235 ICO raised in 2017 for a total of $3,700,682,293.
Who Goes For ICO?
Due to the ability to raise money without losing ownership, ICOs are a common choice for startups and early-stage companies. Literally, anyone who has a project in mind and a whitepaper could go for ICO.
- Less paperwork as compared to other fundraising mechanisms
- Any company can raise funds to fund their project
- Attracts attention to company due to the ICO hype
- Crowd might think the company is a scam
- Difficulty in storing tokens. Depending on how the tokens are created, some might not be able to be stored in crypto-wallet.
- Risk of government intervention. If the government decides to regulate this space, you’ll see the death of cryptocurrency and ICO
Although there are significant differences in IPO and ICO, both are used to raise money for the company. It depends on whether you are willing to give up the shares of the company, which is important in the early days of startups.
ICO is a high-risk investment and everyone must do their research on the project and company before investing. Read this article to know what to look for in a whitepaper – Is an ICO legit, or is it a scam? You can tell from the whitepaper.
Bountie is an example of a startup raising funds through ICO. Wonder why Bountie is going for ICO? We explained in this article – Why is Bountie going for ICO?
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