Initial coin offering (ICO) is the fastest way to get funds for a new business or a startup. With ICOs, investors get to buy new cryptocurrencies called tokens and sell them at a later time, when the company becomes successful. So, what's the catch?
ICO financing is a complicated process that takes time to comprehend. However, this type of funding is well known for its ability to raise millions in short amount of time. Before you start learning about how to invest, here's what you should consider in order to avoid losing all your money.
Type Of Industry
The turnover can be huge and tempting, and many startups will focus their pitch exactly on that. The advertising has a huge impact on how people invest, so try to dig deeper and don't believe the hype.
In April 2018, the most successful ICO investments were for blockchain platforms, a total of 38.5% of all ICO funds in the USA. Next come the communications technologies industry with 16.7%, and then finance industry with 9.6%.
If the startup’s business plan, whitepaper, and smart contract were created with vision and a mission to succeed, then you might want to consider the ICO investment. On top of creative ideas and promises of success, a business plan should have a defined method, plan B, scalability, and an exit plan when (if) all goes downward.
Heavy Advertising
When Bitcoin rose to fame and exploded in 2017, everyone suddenly became an expert. Part of the problem was false and heavy advertising that promised people wealth and security with just a few computers, graphics cards, and internet.
Nowadays, we know that things are more complicated than they seem. The blockchain is slowly becoming a next big thing. There are blockchain venture capitals now, hybrid blockchains, and plans to regulate the ICO funding.
Advertising ICO as cool and fun to be part of can convince enthusiasts, but you don't need them. You need professionals who know what they're doing.
Risk
Investing in new companies can be very risky. Especially if there is not much information about them. ICOs were created to raise money exactly for such type of companies. New creative ideas and tech startups are the first ones that seek ICO fundings.
Since you can't tell for sure that the idea is going to be a success, you need to look for other factors that will potentially determine its success. Btxchange.io recently comprised a list of both some very successful and very unsuccessful ICOs - it all depends on how willing people are to fund your idea and whether they trust it will be a success. Plus, there’s always the issue that ICOs are not regulated and they are open to everyone, which can lead to a hoax and fraud.
Timing
With ICOs everything happens so fast. Sometimes it takes only a few hours to raise enough money for financing a project, like it was the case with Ethereum a few years ago. Yet, successful startups are not that common. You need good timing and some luck to invest in the right company at the right time.
Saying Goodbye To Cryptos And ICOs
South Korea and China banned ICOs in March this year. In June, Google will ban crypto related ads. The ICOs will still be a thing, but more countries and their companies are looking for better regulated procedures before they start investing their money in.
Overall, ICOs are a great way for getting money relatively quickly. They can push big ideas and give huge profit. However, you have to be aware of frauds and scams and realize that some ideas just won't work. Not every business is suitable for ICO, and not everyone has a team of developers that can help turn good ideas into success.
