Blockchain is the new normal in many facets of life today. Since 2017, many people around the world have come to appreciate the impact of the blockchain. From supply chain efficiency to intellectual property protection, the impact of blockchain technology can be felt. Apart from these areas of human endeavor, blockchain also opens a new chapter in the world of fundraising.
What the Global News Headlines Tell Us
In 2017 alone, a total of $5 billon was raised by blockchain-based startups. Before you get carried away, this was just a sign of things to come. In 2018, a total of $23 billion was amassed by blockchain startups. Without a shadow of a doubt, these reports tell us that the blockchain can be an effective way to raise funds.
From Europe to America, and the rest of the world, initial coin offerings, security token offerings, and of late, initial exchange offerings are redefining the way we raise funds. So, before anyone gets stuck to the past, the fast-emerging era of the blockchain has opened new possibilities that are worth examining.
One glaring example of the blockchain model of fundraising is crowdfunding, and this essentially was made possible through token sales. This has led to a reduction in the number of people looking to traditional means to fundraise like Venture Capital financing and Angel Investors. The preference for token sales might be attributed to the fewer hurdles strewn on the pathway of entrepreneurs.
The Problems Associated With Traditional Financing
Whenever an innovation appears on the horizon, it is because it promises simplicity or perhaps efficiency when compared to other alternatives. The problem with traditional financing revolves around bureaucracy and a lack of flexibility. In today’s world the young and upwardly mobile who constitute a huge part of blockchain protagonists, are all for flexibility and fewer rigors.
Since most youngsters were born in the Internet age, they have become accustomed to the possibilities offered by technology. To them, passing files through the hierarchy and confronting repeated bottlenecks in anathema. They are the big winners of the ICO reign, and the many possibilities offered by the blockchain. And yes, why not? They are the future of our world.
The Initial Coin offering Model
Every initial coin offering is predicated on a whitepaper that outlines an underlying project, the roadmap, as well as the mode of actualization of the project goals. So, without leaving the confines of the city where you live, you can contact any of the whitepaper wizards online, who will do a good job within days.
Anyone who is able to properly articulate a clear vision to any of many online whitepaper experts on Skype or even Facebook Messenger can expect results in a number of days. This is largely the narrative of how thousands of whitepapers were churned out between 2017. To 2018. With a ready whitepaper, the project team goes ahead to prepare a media onslaught and within a few hours, a new project goes viral in the world of ICOs.
Importantly, ICOs are smart contract driven, and this makes it easy for the terms of project financing to be automated. So, every investor in an ICO would expect returns by way of price appreciation of the native tokens as well as in the periodic distribution of rewards or dividend tokens to a specified altcoin wallet.
The Security Token Model
The use of security token offering gradually arose out of concerns that many ICOs were nothing more than hype schemes. So, by adopting STOs as a means to raise funds, entrepreneurs had to provide an underlying project as a driver of the STOs. In effect, the security token gets tied to a share of profit, an expected outcome or a certain crystallizing event.
Security tokens were adopted partly in order to escape the sanctions of US SEC for companies that opened their offers to US citizens or corporates. So far, some STOs have successfully been completed with mixed results.
The common ground shared with ICOs is that the processes are largely the same except for compliance with US SEC regulations. The grey areas were KYC and anti-money laundering provisions. So, for investors to participate in STOs, they were required to pass KYC and AML tests.
The Initial Exchange offering
IEOs seems to have arisen from the successful startup incubator programs of Binance, a cryptocurrency exchange. By creating a platform for verified projects to be passed through the crucible of close examination and vetting, startups that are approved get listed on the exchange.
The basic features of an ICO such as whitepapers and roadmaps are retained by the newer IEO mechanism. Today, several cryptocurrency exchanges have come up with IEOs in support of projects they believe are credible and worth giving the needed support.
So, when these new projects are offered to the public through IEOs, participants are allowed to buy the tokens on the exchange in order to provide the needed funds to bring the projects to life. IEOs look like a shortcut to fame and glory for entrepreneurs, but only a few projects can be approved at a time. All the same, entrepreneurs have a better chance to realize their fundraising goals.
Some features of Blockchain Fundraising
There are some features that are inexplicably peculiar to blockchain fundraising. They are closely examined below:
Raising funds on the blockchain gives you a borderless playing field. Irrespective of the country you live in, if your project appeals to anyone in far-flung places, you will have a new investor.
No central regulator
Regulation cannot be avoided in many cases, but for blockchain startups, they do not face a central regulator. This makes the cost of entry quite cheap.
Crowdfunding gives a project a huge advantage. By leveraging on the power of the crowd, some individuals can afford to give the minimum they can while others can commit to the maximum limit of fund allowed per investor.
Fundraising through the blockchain has helped several startups to the limelight. Today, EOS, TRON, BitTorrent, and Binance Exchange have made it to global headlines because of blockchain possibilities. With many hurdles associated with traditional financing done away with, a whole new world of business financing is here to stay.