Are you a new entrepreneur with a brilliant idea for a new blockchain startup? But like any startup, your venture can only take off once you raise funds, The conventional options you have are – raise a seed round from private investors, pitch your idea to venture capitalists, or perhaps fall back on crowdfunding forums. However, have you explored the world of blockchain to raise funds for your project? Did you know that there is a way to raise capital for your project by selling blockchain-based digital assets?
In the crypto industry, this process is called an initial coin offering (ICO).

ICO, IDO & Launchpad – An Overview

What is an ICO?

An Initial Coin Offering (ICO) is a fundraising mechanism in which an entrepreneur, company, or organization creates and sells a new cryptocurrency or token to the public in order to finance their project or business. In an ICO, investors typically purchase using either fiat money (e.g., dollars) or cryptocurrencies like Bitcoin or Ethereum.

This initial coin offering usually takes place before the token is listed on a cryptocurrency exchange. After investing in an ICO, the token’s price will appreciate (or depreciate) relative to Bitcoin or Ethereum, the two most popular currencies used for exchanging crypto tokens. If a token appreciates enough following an ICO, its owner will be able to sell it on an exchange at a profit.

What is an IDO?

Initial DEX Offering (IDO) is a variation of ICO, where instead of using centralized platforms to raise funds, projects use decentralized exchanges (DEX) to launch their token.

What is a Launchpad?

A launchpad is a platform that helps projects to launch their ICO or IDO. It is typically a website that provides the necessary infrastructure and tools for projects to conduct their ICO or IDO, such as a token smart contract, a whitepaper, and a website. Some launchpads also provide marketing and community-building support to help projects raise awareness and attract investors.

A ‘Launchpad’ is basically just another word for crowdsale event where investors receive coins from developers rather than shares from companies – this enables fans of certain projects access premium perks such as discounted merchandise items through smart contracts built into blockchain technology which means no third-party involvement needed!

ICOs & IDOs – an Alternative Means to Raise Capital?

Raising funds or capital via ICOs / IDOs can be very appealing due to the following advantages:

• Ease of transaction: ICOs can raise capital directly from anyone with a crypto-wallet, anywhere in the world.
• Liquidity: Tokens are sold into a global market that operates round-the-clock.
• Quick transaction time: It takes approximately 100 lines of code to create an Ethereum-based token like ERC-20. Theoretically, tokens can be created and distributed in a very short timeframe.
• Investors are not owners: Tokens do not grant ownership rights to token holders unless this is programmed into the smart contract explicitly.
• Community: ICOs attract early adopters and align the early user base behind their success.
• Minimal government regulation: Disclosure requirements and paperwork (depending on the regulatory status of your token) can be minimal.

As an investor, it is important to note that ICOs and IDOs are highly speculative investments and many projects have failed to deliver on their promises. It is important to thoroughly research any project before investing, and to be aware of the risks involved.

As an entrepreneur, start-up, or company one must factor that the crypto marketplace is extremely competitive, and your project will face serious scrutiny from both regulators and the crypto community itself.

Trivia

POs are highly regulated and scrutinized by government organizations such as the SEC, while ICOs are largely unregulated. [U.S. Securities and Exchange Commission. “Spotlight on Initial Coin Offerings (ICOs).”]

How an ICO Works

Whether you are an investor or entrepreneur – both need to have a thorough understanding of what an ICO entails. In this section, we will walk you through important moving parts of an ICO.

When a cryptocurrency project wants to raise capital through an ICO, the project organizers’ first step is determining how they will structure the coin. Simply put, finding a balance between the supply and the price of the token for their ICO. If supply is too high, then the price per token will be diluted and low, but if the supply is too low then there might not be enough tokens to satisfy their investor base, or investors might be discouraged by the high price of the token. 

You then need to understand the type of token being offered in the ICO. Tokens are code programmed with different features. Tokens can be categorized as utility, participation, investment, or asset-backed. Each type can be bound by its own legal requirements and it’s therefore very important to be clear on the status of the token being offered. 

Once the structure and tokenomics of the ICO is in place, the next component is the “white paper release” – a campaign that pitches the project or a “pitchbook”. The project promoters make this document accessible to potential investors via a new website (or launchpad) dedicated to their token.  This pitchbook contains all information crucial to the ICO:

1. Project brief: a summary of the project and all that it aims to achieve. 
2. Capital Requirement: the amount of capital the promoters aims to raise
3. Ownership: number of tokens retained by the project founders
4. Payment: the various digital or fiat currencies accepted in raising the funds
5. Duration: the timeline allocated to the campaign to raise the required funds

The white paper, in essence, is a series of SMART (specific, measurable, actionable, realistic, time-bound) milestones and goals.

The funds raised after the release of the white paper indicate how appealing and convincing the project is to investors and enthusiasts. If the funding requirements are met withing the stipulated time period, then the capital raised is spent in pursuit of the project’s goals. However, if the money raised in an ICO does not fulfill the expected minimum amount, the project’s investors may be refunded and the project is shelved as unsuccessful.  

The returns or rewards of an ICO may sound very promising in it’s white paper, but an investor needs to verify all that s/he reads before trusting. The starting point is obviously to ensure that the project promoters are real and accountable. It is imperative to find out the history of the promoters and leads with crypto and blockchain. Do not invest your money if the project does not involve people with relevant or verifiable experience.

Even though the ICO is an effective way to raise funds for a cryptocurrency project, there are several potential drawbacks that investors should consider before participating in one. For example, many ICOs have turned out to be scams or at least failed projects and investing in them can lead to huge losses. Another drawback of ICOs is that most of them don’t give you any legal rights over the tokens you purchase through these sales; instead, they’re usually just promises about future use-cases and services which may or may not be built as advertised.

Having said that, one cannot ignore that the crypto marketplace has been a boon for many startups like Ethererum,  Polygon(Matic), different exchanges like wazirx, binance. It is certainly an exciting place to pitch new ideas and test the potential for ventures and projects that do not even get noticed in the conventional finance market.