Most firms prefer private investments for growth. Still, after some time, they have to turn to the public for funding. They can either seek money to start or for operations.
While there are several ways to raise funds, ICOs and IPOs are the most successful. This analysis looks into how IPO differs from ICO. It looks into what each entails and then advises on the best for investors.
Let’s get to it;
What is an IPO?
An Initial Public Offering (IPO) is a way through which private companies become public traded companies. There is a well-established process the companies have to go through. It is all about the public selling of shares of a company to collect funds for development.
What is an ICO?
Initial Coin Offering (ICO) is different from the IPO. It is related to blockchain technology as it is a way companies raise capital. They then use it to raise projects around decentralized applications.
The first projects are easy to get to as investors don’t need any documentation or legal clearance. The project also offers the early investors several goodies. They can provide free tokens through referrals, bounty programs, and more. This makes ICOs become popular and attract many funders.
Differences between IPO and ICO
Even though they are both ways of raising funds, IPOs differs from ICO in several ways. Here are the main differences;
Investing in IPO takes time. The investor must fit the company requirements before they can invest. They have to provide several documents to show the source of income and not money laundering.
IPO is also for the investors in a given country. Investing in a company within your country is straightforward. The only concern is when looking for foreign companies. It requires additional legal procedures. You might have to use the services of a broker. This might turn out costly in the end.
Investing in ICOs is the easiest. The decentralized nature of blockchain means there is no one restricting the process. All you need to start investing is access to the internet. Investors also have access to any tokens from any country.
The anonymous nature of blockchain also means you don’t need any documentation when taking up an ICO.
The main reason for an IPO is for future expansion projects of a company. It is an undertaking by an established company looking for financial support. It is also mainly by financially stable projects on a growth path.
ICO is for newer projects getting into the market. They are looking for money to start as investors hope to gain later on.
A company offering IPO works with several entities. It has to cooperate with an investment to provide the shares. The company also has to incorporate a legal team with accountants and auditors. The process involves several documents.
Of all the documents, the most important is the prospectus. It shows the company has included all the critical information and meets the transparency standards. The SEC has to approve all the documents.
ICOs, on the other hand, don’t provide too much documentation. They only need a white paper detailing important information about the project. Still, the projects don’t have any obligations for the whitepaper. Some projects have been launched without one.
Both investment strategies come with the possibility of losing or gaining. In case of luck and both are profitable, the investors gain differently.
IPO investors gain ownership stakes in the company. They earn yearly dividends based on the company’s performance. They also have voting rights and decision making to influence the company.
The other option to gain is by buying shares in the early stages. You then sell them later when the value rises.
For ICOs, taking up the currencies does not guarantee ownership of the project. Every digital currency provides for unique ways through which investors gain in the future. Most of the projects provide for a fixed amount to be paid on a specified date.
All the details on the profits are available on the project’s white paper.
IPOs come with several requirements before it can go live. The company must provide records to show performance over the years. It also has to undergo auditing by professionals. The SEC then ratifies all the information. The process takes a more extended period, from six months to two years.
ICOs don’t provide any documentation or legal requirements. They also have no track record to show. They only have a white paper, which is also not mandatory.
The duration of an IPO is quite long. It takes time to have everything in order. The period for selling the shares is also longer. It can extend up to 3 months. The company can also offer an additional top-up depending on the target.
ICO is quite fast, depending on the nature of the project. The project starts with a crowd sale immediately after releasing the white paper and a smart contract. It then finishes when it hits the maximum market cap. The period usually lasts around one month.
IPOs are mostly for institutional investors like banks. It only keeps a little portion for retail investors. Retail investors also need to have a substantial amount to make a sound investment in the company.
ICO, on the other hand, is open to anyone. All you need is to own the cryptocurrencies in the form of Bitcoin or Ethereum. You will then convert the coins into the token of the ICO.
Which One Should You Invest in?
Looking at these investment options, it takes time to decide. Both come with numerous pros and cons. You have to take the time to analyze the two to choose the best.
IPO offers reliability due to the established procedures. It also comes with legal coverage and allows investors to observe company performance. It also grants the investor ownership of the company.
ICO also offers benefits like fast investments. You don’t have to go through a lengthy bureaucratic process to invest. It also allows for small investments and provides international accessibility.
Making a choice, though, you are better with an ICO. The world is moving to embrace blockchain technology. For now, ICO is the technology of the future, while IPO becomes a thing of the past.
The ICOs are also becoming mainstream with increasing regulations. With time it will be as safe as any other investment.