A guide to ICOs and how they can help your company

Copyright: designer491 / 123RF Stock Photo

If you are in the startup ecosystem , or just a casual reader of tech sites , I’m sure that the majority of fundraising stories you have read in the past few months have had a new term attached to them :  ICO. This is a type of fundraising that doesn’t sell company equity, but sells something called “tokens.”

It might be hard to believe for some, but companies have actually raised more money through ICOs than from VCs in 2017. Getting money for your business is of course awesome, but I believe that ICOs are more than just a tool to raise some capital.

To explain the economics and incentives behind ICOs, I’ve put together this ultimate guide for you. Unfortunately, I won’t be able to cover how you can carry out your own ICO or how to participate in them, but fear not, because those might be coming soon.

The C in ICO

The acronym ICO stands for Initial Coin Offering. Just from the name, we can easily figure out that companies can raise money by offering the initial (and/or the only) set of coins. Sounds simple enough, but what are these “coins” that are being offered?

While the world calls it “an unregulated means of crowdfunding via use of cryptocurrency,” I believe it’s much more than that for business because of the implications it brings along. In this guide, we’re going to delve into the coins first, and then move up the ladder to understand the initial offering of the said coins. To get the most out of this article, it really helps to understand how a blockchain works.

To make this whole thing easier, I suggest we create an imaginary scenario.

Scenario: an app store for mobile games

Let’s say you want to build  an app store just for mobile games, where gamers will be able to download free and paid games, upgrade, or unlock bonus levels. Seeing that you’re a great entrepreneur, your app takes off and becomes a thriving ecosystem of gamers and game developers. The biggest game development companies would start releasing their games, and the world’s most hardcore gamers would play them on your platform. Truly a dream come true.

But it’s just a dream . In order to make your app store really happen, you’d have to hire engineers to build the platform, hire people to get game developers on the platform, and spend loads of money to evangelize the platform to gamers. There’s a long road ahead, but your pockets are empty.

And even if you’d somehow managed to put together the app store with all of its amazing features ,  you’d still have problems. Game developers would need to start uploading their games, but why would they, without any gamers already using the platform? To fix it, we need to make a plan to bring in a desperate mob of gamers on the platform. But why would they come when there aren’t any games readily available to download and play?

Initial Offering

Fraud, lies and despair

Conclusion