Should You Consider Doing an ICO for Your Startup?

When it comes to working on a startup project, one of the most difficult things to do is getting enough funding.

For startups, there're many traditional ways to get funding. For example, startup owners can fund the project by themselves using personal funding. They could also borrow money from friends and family to get funding. However, these methods are not very practical, as most people don't have enough money to fund new entrepreneurship.

Another source of startup fundings is from professional investors such as VCs and angel investors. Those people have enough money to invest in startup adventures, and they are usually willing to take the risk of losing their money. However, the problem with getting funded by VCs and angel investors is that it's usually quite difficult to get approved. Not only it's quite difficult to get in touch with them, but there's usually a pretty long and restrictive process to work with them. Also, they don't give their money to you for free. They invest in your startups in exchanges for shares and ownerships of your business. Therefore, you need to give up some of the shares of your business to them upfront.

In the recent years, a new way of getting startup funding has emerged. It's called ICO, standing for Initial Coins Offering. It was made possible by the blockchain technology, which has been powering cryptocurrencies such as Bitcoin, Ethereum, Litecoins and more.

How Does an ICO Work?

To some degree, ICO is like an IPO, except that you don't have to go through the long process of working with financial institutes, lawyers etc. and you don't even have to meet the requirements such as you already have a working business with solid incomes.

The way ICO works is that you create something called tokens, which are quite like cryptocurrencies such as a bitcoin in that they are stored and exchangeable at a blockchain. In most cases the Ethereum blockchain is used for ICOs.

During an ICO, you create a fixed amount of your tokens and allow people to buy your tokens using a cryptocurrency such as bitcoin or ether. The token purchased from you works similar to the shares that shareholders purchased from a public company. Similiar to a stock, the token can be then sold on an exchange.

People buy your ICO tokens because they hope after buying them their price might go up later and thus they can make profits from trading them, which is also similar to how stock works.

Currently ICO is a very popular way to get startup funding. On this internet you can find many ICO lists on which current or upcoming ICOs are listed for potential investors to buy.

Should You Do an ICO?

ICO is still brand new, and it's not well regulated. As a result, there are many scams related to ICO. Many companies just do an ICO to get some quick money. They don't have a solid business model and even the intention to create a real business. With a whitepaper and a website, they hope to sell their tokens to get money and then become rich. There are many occasions in which after the ICO is complete, the ICO company just disappeared with their investor's money.

Whether to do an ICO is quite depended on you. I guess there're many things to consider.

First of all, most ICOs are tech companies that to some degree use the blockchain technology to provide services or products. If your startup uses the blockchain technology, ICO could be a choice for you.

Also, you need to check regulations in your country. In some countries, such as China, ICO is not allowed. Also, due to local regulations, many ICOs are not open to investors in certain countries, such as the United States. Your should check on the regulation before making your decisions.

How to Do an ICO?

You need to have a business plan and a good team. One thing particular about ICO is the requirement of a whitepaper, which is similar to a business plan. Basically, you write down your business model, its technology and your timelines etc. in a PDF document for people to read.

Also, you need to get help from some programmers who can write a smart contract, which is a piece of code to be uploaded on a blockchain for managing your ICO tokens etc. You need to decide the name of your token, the total amount of tokens to issue and the start and end dates of your ICO.

Then you need to adverise for your ICO to let people know about it. When your ICO is live, people can visit your ICO website to follow instructions on how to send cruptocurrency to your smart contract to purchase your ICO tokens.

After you have successfully sold all tokens you have planned to sell, your ICO is over. Now you might want to work with cryptocurrency exchanges to get your token listed there, so that people can trade your tokens.

Conclusion:

ICO is a brand new way for startups to get funding. Compared to doing an IPO, it's easier and that's why many companies have chosen to do an ICO. However, there's still not enough regulation and there are many scams in the ICO field. You should think carefully whether you should use ICO to get startup fundings.