Raising that cap, raising that cap.
The ICO (Initial Coin Offering) – a relatively new concept used by startups to raise funds in order to progress their business idea. Simple, right?
Not exactly. The thing is, the ICO isn’t widely used, indeed, it isn’t even widely known outside of the immediate crypto-currency world.
Rather like the title of this blog may be, the ICO has previously been met with derision, scepticism and a certain amount of negativity, (it was difficult to think of a punchy title that grabbed attention but in a moment of wonder, the Groove Armada reprise of a classic came to the forefront of my mind).
Now, upon its release in 1999 the single itself only peaked at number 17 ,yet due to its use in a Renault advert four years later it re-entered the UK charts at number 11. It is hoped, nay, predicted that, the more people that become aware of the ICO, the more it will be utilised by increasing numbers of startups and investors alike.
The ICO in a snapshot:
The first ICO was held as recently as July 2013 by Mastercoin. There were many highly successful ICO raises in the following years (Ethereum raised $2.3m in its first 12 hours in 2014,just one very successful example). 2017 saw a sharp rise in the popularity of ICOs – by the end of the year they had, according to Cointelegraph, raised around $6 billion during 2017.
So, what’s the problem? Everything is rosy in the ICO garden? You may (or may not) be surprised that the answer to that question is, no. It would be amiss of me not to discuss the negativity towards the ICO. There have been cases where the ICO has been used as a vehicle to carry out scams. The SEC has recently warned investors to be aware of ICOs being used to raise the value of a coin by increasing ‘hype’ before dumping it, making a profit in the process.
The platform Mobidea.com lists a number of signs of an ICO scam. Having trawled through a number of similar sites, the same issues appear to be repeated when you run into such a fraudulent affair:
1: The business often has a weak website
2: The business refers to an incomplete business plan (or white paper) on its site
3: The business does not mention any developers or team members
4: There is no clear roadmap mentioned on the website
5: The fundraising goal of the business is not capped
6: There is no direct way to get in contact with the team
All of these are legitimate warning signs and an investor in a start-up (or any business for that matter) should do their proper due diligence.
If you are interested to learn more about fraudulent ICO raises and how to recognise them, check out this list of Top ICO Scams in 2017 on Cryptomorrow.
The process of the ICO
There is the pre-ICO – a pre-sale if you like. It gives people an opportunity to invest in the company before the actual ICO. People who take part in the pre-ICO have the opportunity to purchase the coin at a much-reduced rate and also a higher bonus amount.
The ICO is held by companies to gather larger investors. Anyone can take part in an ICO – create an account on the company landing page and place your investment.
There are many benefits to joining at the crowd-sale ICO stage. If the project it is something you believe in, you can take heart that you were ‘there from the beginning’ and that you helped the fledgling project spread its wings. There is also the fact that by investing, the company gives you tokens as an asset that you can sell at a later date. Bonuses are also given to investors at this early stage (although lower than at pre-ICO stage, there is still potential for profit when the coin reaches the exchanges).
‘Genomes’ is one start-up that is offering an opportunity to invest in an emerging and competitive market of Genome sequencing. We are a Blockchain application designed to privately and securely store an individual’s whole genome sequence data as well as enabling third party access when approved by the individual, in exchange for tokens known as GENE. Investors will be able to purchase the GENE token at pre-ICO stage and later during crowd-sale.
Staying with ‘Genomes’, I refer back to the aforementioned signs of an ICO scam. ‘Genomes’ boasts an accessible site detailing the market, nature of the project as well as a detailed and updated White Paper. The website and White Paper list members of the team, providing a pen picture of their background and role. The White Paper details a clear and succinct Roadmap of key dates as well as detail of the capped fundraising goal continuously seeking to allay the fears of the investor.
So there you have it, a brief, balanced snapshot of the ICO world. Yes, in its short life it has been used by scammers and there will be some who will forever advise to steer clear of the ICO. But my feeling is that it will continue to grow and will be around for a long time to come, allowing people to easily invest in new start-ups of which they feel passionately about.
Like a certain hit single of the late nineties, some things just take a little time to reach their peak.