Free to Flourish

Regulators are baffled. Governments have no idea how to tame this one. And, the market is flourishing. I’m talking about ICOs, or initial coin offering, a novel way for businesses to raise funds for their innovative ideas. This is what happens when there’s no central authority to meddle in business affairs.

What is an ICO Anyway?

Since 2013, startups have used ICOs to fund the development of their projects. It’s a crowdfunding mechanism based on the revolutionary blockchain technology and uses cryptocurrencies to fund businesses.

Here’s how it works. Let’s say you have a great business idea, but don’t have sufficient funds to turn that into a reality. Legacy banks don’t want to lend you any money because you’re just starting out and you don’t have any collateral to offer against a loan. And, these loans are riddled with grueling paperwork and high interest payments. Venture capitalists and even angel investors are unlikely to entertain you, since your idea is in the pre-development stage. There’s no proof of concept or market traction to convince bigger institutions. You haven’t yet started. And, all the compliance laws and taxes will probably crush your business before it’s even had a fair chance to get off the ground.

You’re stuck and wondering whether to give up your entrepreneurial dreams. Well, not yet. There’s a way to raise funds. And, all you need to do is to convince a large enough number of regular people that your idea has potential. The best part is that most of these people would form the user base for your offering. As an entrepreneur, you should be able to convince people to buy your product or service. That’s all you need to do, when you opt for raising funds via an ICO.

How Does an ICO Work?

To begin with, anyone can launch an ICO. Here’s how it works. You have a business idea. You issue tokens (digital units) and sell these via ICO exchanges. These tokens are different from equity, as they don’t give the holder any ownership rights. What they give, however, is some benefit when your business takes off. The benefit could be free use of your services for a month or an attractive discount. So, people buy your tokens today to get an advantage in the future.

Interestingly, these tokens also trade on crypto exchanges, much like shares of a company. As your business flourishes, your tokens become increasingly valuable and are traded for returns.

How Does an Entrepreneur Launch an ICO?

Here’s what you need to do. Create a document with details of your idea. This should explain the problem your business will solve, how your solution fits, a roadmap for developing the idea, details of your current team, how your business will generate revenues, the current market size and the projected profits of your business. The document also needs to have details of your token, what you’ve priced them at, how token holders would benefit and the dates on which you would be offering your tokens for sale.

List your token on ICO exchanges. And, then begin distributing your document. Upload it on your website. Email it to friends, family, colleagues. Share it on social media. Attend industry events and hand it out. Participate in webinars or online events and offer to email the document.

People who are regular ICO investors will see your listing on various exchanges. They will check out your website and download the document from there. They would also try to find out everything about you and your team. The academic and career achievements of the team build credibility for your business. Investors rely on your team’s credentials to judge the prospects of your idea. So, it’s important to keep your social media profiles updated.

But does this system work? How successful is it? What are the reasons underlying its growth? Read my next article.