Initial Coin Offering: New way to raise start-up capital

Tech

With tough regulations on Initial Public Offering (IPO), companies seek ICOs to raise quick money.

Bangalore, March 22, 2018: Initial Coin Offerings (ICO) though unregulated, is emerging as an alternative route for start-ups to raise capital from foreign markets.

In 2017, $3.7 billion were raised globally, as reported by Earnest and Young. a Mumbai-based rental start-up Drivezy raised $5 million through ICO through their Japenese investors this year in February.

Another, Bengaluru-based decentralized crypto-currency exchange, WandX raised around $4000 in October 2017 in Singapore.

Abhinav Ramesh, Founder and CEO of WandX said that his company mainly acts as a crypto-currency exchange where people can buy and sell crypto-currencies. His exchange mainly deals with the crypto-currency called Ether and uses the Ethereum blockchain technology.

He added that ICOs are a more convenient way to raise money from global investors.

Initial Coin Offering or ICO is similar to IPO but without the local regulations. In an ICO situation, when a company wants to raise money it offers crypto-currency in exchange for every investment.

Most of the time, the company offers a privately created crypto-currency like Drivezy’s Rental Coins or WandX’s ERC20.

The digital currency or token has no value on its own but acts as a digital certificate of ownership in the particular company which had issued it. The company also releases a document called the whitepaper which records the details of the projects, its projected timeline and completion time.

The earliest ICO started in 2013 with the sale of Mastercoin, later renamed Omni layer and became an integral part of Bitcoin technology.

Mastercoin’s creator J.R. Willett was the person who came up with the concept of ICO and had invested $1 million to back the Mastercoin.

In 2016, a total number of 43 ICOs were recorded which raised around $95 million. In 2017, the figure rose to 210 ICOs and the amount raised was around $3 billion.

In March 2018, 71 ICOs have so far raised around $2.8 billion.

One of the biggest concerns that has come up is the failure of the successfully funded ICOs.Many have been abandoned and many emerged as work of fraudsters.

RBI, which is in the process of coming up with a regulation, has released directives cautioning against crypto-currency and ICO.

Ramesh said that with the emergence of new technology incidences of fraud will always come. However, he said the number of ICOs especially in India is set to rise exponentially.

Karthik Mandaville, Founder and CEO of Springrole, a “Linkedin on a blockchain” of sorts is also in the process of raising capital through an ICO.They have released their white paperwhich elaborately mentions all the aspects and future roadmap of the company.

He said that the ICOs are preferable for a newer start-up as they do not have the long and rigid paperwork and legal process involved in a traditional IPO despite venture capitalist firms being the best method of getting in capital into a company.

He added that ICOs are already disrupting the industry and therefore, they would be recognized and made a mainstream investment tool in the near future.

Wasim from Appiness Interactive Ltd., another Bangalore-based software company said that they too are set to launch their ICO token sale this year.

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