ICO companies are essentially start-ups, and present the same challenges and risks to businesses, investors and participants alike
ICO’s are hot property right now – in the first two months of 2018 alone over $1.1 billion was raised through them.
Without doubt they have completely transformed the start-up funding model. So much so, in fact, that during the final quarter of 2017 more capital was raised through ICOs than traditional venture capital financing.
Token sales have dominated the headlines over the past 10 months, but despite the hype and mainstream break-out, the ICO terrain is still precarious and remains notoriously difficult to navigate – even for the most astute investors.
This is because while ICO companies are essentially just start-ups looking to raise capital, the way they raise said capital is very different.
Traditional start-ups sell equity or stocks to investors to raise funds at an early-stage. But with ICOs it is not stocks or equity that is sold but rather goods and services to acquire future revenues. This is done by providing participants digital assets in the form of tokens.
As the ICO ecosystem matures, the majority of funding is being raised during discounted private sale and pre-sale token rounds which is a step away from the large general sales of the original ICO’s.
By purchasing large quantities of tokens at a discount during private and pre-sales, these participants could be able to control the flow and velocity of future token transactions. Therefore, without governance of token holders, this could enable significant participants to potentially manipulate the business and ultimately gain control.
For many ICOs, significant participants are welcome, bringing with them added funds which, in turn, makes the token sale a more attractive proposition for future participants due to the level of funds already raised. In addition, they also bring experience and knowledge to the table.
But it’s important to keep in mind that ICOs are start-ups. If an ICO, like any other business, onboards the wrong type of investors or participants it will have detrimental consequences for its future direction and success.
This means that ICO companies, investors and participants need to take a considered approach when deciding if the opportunity is the right one for them.
Fyrsst takes a slightly different approach to ICOs and funding, bridging the gap between traditional start-ups and token generation companies. It is an approach that allows ICO companies, investors and participants to benefit equally.
By providing the opportunity to pre-fund projects with traditional capital, we allow ICO companies to develop a robust capital structure.
With this pre-fund equity injection, ICO’s can properly prepare their projects bringing them to market with a viable product on a DLT platform without exposing themselves to unnecessary investor risk.
Conducting an ICO is an expensive and difficult process; the long list of failed token sales is evidence of that. In our experience, the better financially stable the token generating company, the more successful the ICO will be.
For investors, we offer a private equity access for traditional assets-backed investments, which pre-funds companies to launch their ICO.
For participants we also offer a totally separate private access that allows them to purchase the tokens of these token generating companies.
We believe this approach benefits ICO companies, investors and participants equally, and lays the foundation for all parties to achieve their goals.