Both established and starting companies need money for operations. Even though they can get funding from private investors, public offerings are quite lucrative. Companies have mostly relied on Initial Public Offerings (IPOs) to raise funds.
The IPOs have elaborate regulations with several documentation. They tend to be costly to set up in the long run.
The entry of blockchain has come with the age of Initial Coin Offerings (ICOs). For ICOs, a company sells token to potential investors. Investors then seek to gain later when the project becomes successful. Setting up the ICO is hassle-free and more accessible.
Still, both IPOs and ICOs have security risks. This article looks into the safest.
Let’s get to it;
Main Differences between ICOs and IPOs
IPOs occur when the company is already running and established. By then, the investors know what they are getting into. The companies, at this point, do need long-term capital, not development funds.
ICOs occur at the earlier stages of the company. At this point, the company is yet to have a concrete blueprint for development. The earlier stages offering makes it riskier.
The regulations between the two investment options differ. The Securities and Exchange Commission regulates IPOs. ICOs, on the other hand, work on self-regulated blockchains.
Even with the difference in regulations, both means possess risks of scam. They have both had cases of scams before. You have to do due diligence before investing in either.
Investors can put their money on an ICO even without the underlying token. It is all in the principle of good faith. There have been instances of tokens failing to take up. IPOs, on the other, must provide for verifiable listed shares. The investor can rely on share performance when making an investment decision.
The decentralized nature of blockchains means there is no central control. It is a free market where one buys tokens depending on ability. This has seen the rise of whales who can control the market prices. IPOs, however, come with allocation control. The regulation uses various methods to ensure fair asset allocations.
IPO is an ideal investment when the company of interest is in your country. The process of acquiring such shares is straightforward. It gets a little complicated when investing in foreign companies. You might have to use a broker due to the additional requirements.
Investing in ICO is quite a breeze. All you need is access to an internet connection. You are free to invest in projects from anywhere in the world. An exception is on securities for the US, also if you are in countries that ban cryptos.
Acquiring stocks of a project through shares allows your stake in the company. You earn dividends depending on company performance. You can also sell the shares when the values increase.
ICOs don’t guarantee ownership of the project. The whitepaper of the project details how the investors will gain.
Pros and Cons of IPOs and ICOs
Looking at the difference between IPOs and ICOs, it’s easy to conclude IPO is the safest. You might think the regulations keep you safer. A company can still fail even with the legal requirements and documentation. Investing in a promising ICO comes with the needed profits, yet with less bureaucracy.
The only way to ascertain the best option is to look into their pros and cons. Here are the benefits and concerns for both;
IPO comes with several benefits like reliability. You invest in a known asset with no expectations. It also comes with legal requirements from regulations hence customer peace of mind. The presence of company records also allows for ascertaining the real value of the company.
It also comes with significant issues like complicated registration. The investor is also limited to the amount and country.
Like IPO, ICOs also come with several benefits. It is a fast investment method. There is no chain to follow or legal requirements. It is also great for small investments as it does not provide for limits. Being the sole controller of your assets also means you choose the risk you wish to incur.
The only concern with ICOs is the possibility of od loss from scams projects.
Which one is the safest?
Until this point, the IPOs still seems to be the most secure due to regulations. Still, there is a case for the ICOs. Digital currencies have been gaining market traction. They are fast becoming mainstream. The more they become widespread, the more regulations become a necessity.
The hype surrounding virtual currencies has by now gone down. The regulations are taking over. Already, some projects have listed their tokens with the SEC as securities. However, they still go with the ICO option due to the flexibility and speeds it comes with.
The use cases of digital assets are becoming more by the day. The shares from the ICOs can be part of an autonomously executed program. These systems are free from any human interference. For that, you can always believe the results on the performance of the tokens.
The decentralized nature of blockchains also makes ICO valuable for any investor level. The small investors don’t have to worry; then big ones would rule in their favor.
The security of the ICOs is also excellent on its flexibility. Even though a new system, their use is not limited to startups. Even the existing companies can use it to raise funds. It’s even convenient for them as they are easier to evaluate.
ICOs have proven to be a reliable way to raise funds. They come with more use cases and improves innovation. The only concern is the scams and other malicious users, giving it a bad reputation. The industry is headed for more regulations; hence it will be safer than ever.
The future of ICOs and IPOs
Every investor is always after a return on investments. The only way to ensure the returns is by investing in safe assets. Both IPOs and ICOs are reliable fundraising means for companies. The investors gain part of the company through shares.
Even though IPO has been operational for longer, the ICOs are becoming the main deal. They come with ease of investing and decentralization. They are also getting more secure as blockchain become more regulated.