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IPO vs ICO – what is the difference?

Olga Okhrimenko
Olga Okhrimenko Marketing Manager
7 minutes to read
difference between ico and ipo

The Principal Difference Between ICO and IPO

Over $1,5b was collected through Initial Coin Offerings (ICOs) in 2017 alone.

This figure is overwhelming.

The rapid growth of the cryptocurrency market has drawn the attention of both dealers willing to make a fast buck and fresh startups seeking for investments.

The opinions on ICOs have been divided.

Experts are expressing the concern about the fact that the market is still opaque and supporters considering it as a disruptive innovation which is going to significantly change the economic foundation.

The Difference Between ICO and Crowdfunding:IPO
https://www.icodata.io/stats/2017

The boost of blockchain has generated some terms such as “cryptocurrency, “token, “coins and others.

These terms are often associated with other buzzwords ICO and IPO, which sound very similar, yet stand for very different technologies.

Both of the fundraising means refer to crowdfunding through the generation and crowdsale of crypto coins.

To identify the winner in the battle IPO vs ICO, let’s analyse the features of the two.

Introducing Crowdfunding and Small Companies IPOs

Nothing is impossible nowadays.

If you’re a small startup starving to be launched at minimum cost, be ready for your dreams to come true with just a wave of the magic wand of crowdfunding.

Crowdfunding campaigns run by a plethora of platforms such as Fundable, Kickstarter, RocketHub give small businesses a chance to present themselves to the crowd and fund their enterprises.

As there are no intermediaries in this process, collecting money through the public has become very popular all around the globe.

Difference Between ICO and Crowdfunding:IPO
Source – statista.com

 

The Initial Public Offering (IPO) is a crowdfunding strategy elaborated by a private company aiming at expanding and being publicly traded.

In simple words, IPO is about selling a company’s stakes intending to raising funds for its development.

IPO concept works well for reputable companies willing to share the ownership with the public.

Investors then can use their rights which are proportional to the shares purchased by them.

The key thing about IPO is that it’s an exit campaign.

It means that a business owner or an investor may want to get rid of an asset that is not lucrative or a business which is not profitable.

Executing an IPO is a big deal and requires careful considerations.

Serious changes of the external environment, juridical reasons or personal matters may be among the reasons for closing a business.

ICO and Crowdfunding:IPO difference

IPO campaigns are not as simple as they seem to be.

You can’t just start selling your shares, for this purpose you will need to hire an investment bank.

Besides, any public company has to be run by a professional management team focused on the target market and that is able to prepare necessary financial documentation for the IPO process and ready to demonstrate excellent managerial skills to the board.

When all these requirements are satisfied, a company starts negotiating the terms of an IPO sale with a bank which are to be handed over to the SEC afterwards.

Only if the SEC approves a registration document, it will set the date of the public sale.

Then there comes the time of discussing the share price.

There are plenty of factors influencing an offering price such as a company’s inspirations, its roadmap and the state of the market.

Public companies are primarily targeted at big shot investors, whereas small-sized ones are not of IPOs’ interest.

However, if an individual is reluctant to purchase shares, the investment bank executing an IPO can open an account for them.

So, those people wanting to participate in an IPO have to bear in mind that the chances are quite low.

IPO with highest return rate
Source – statista.com

 

ICO – A New Step In Funding For Small Businesses

Now when everything is more or less clear with IPO, let’s get deep into ICO.

The invention of the cryptocurrency market gave rise to ICO projects.

Just like IPOs, ICO is a way of raising funds for projects on the early stage.

Within the framework of an ICO, tokens or crypto coins issued by a company are traded in return for liquid Bitcoin or Ethereum (check the graph of the Bitcoin price index below).

Tokens do not provide investors with equity rights and very rarely give dividends.

bitcoin price index
Source – statista.com

Being similar to IPOs, ICOs, however, are entry campaigns.

To get access to the market, startups need to raise seed capital and developing an ICO campaign may sound like a perfect solution.

Tokens price is set by companies, and it is not tied to the market conditions.

On the one hand, it is a great benefit for product owners, on the other hand, it presents a risk for sponsors as they can’t predict the probable outcome.

In case of a negative scenario when tokens are overestimated, investors are likely to be at a loss, and the worst thing is that they will hardly be able to safeguard their rights.

So, you have decided that ICO is suitable for your business and don’t know how to put it into action?

Let’s have a closer look at the whole process.

Step 1. Create a Product

First of all, you need to create a product, the one that will change the world.

Take your time and try to make your product stable and secure to convince business angels that it is worth being supported.

Step 2. Create Tokens

Surprisingly, this step has to be the easiest one.

After developing a product idea, you need to create tokens constituting a digital currency, reward points, ownership certificates, etc.

Also, you should think carefully about the amount of the main and additional tokens emission, the percentage of tokens that will be kept for your team or sold in the Pre-ICO campaign.

There is no need to start a blockchain yourself, there are a number of platforms that will do it for you with the help of sophisticated algorithms.

blockchain platform market share
https://icowatchlist.com/statistics/blockchain

Step 3. Prepare Legal Documents

Since ICO is about dealing with money, there is a requirement to make it, to some extent, legally covered.

Though it is not mandatory, preparing the documentation that describes the validity of your token issuance plan will help you avoid possible disagreements with the SEC.

Remember, that you will need to turn to a legal advisory to guarantee the relevance of your campaign to laws and regulations.

Step 4. Create a White Paper

On this step, you will need to write a white paper, the prospectus of your ICO campaign.

The white paper should include the technical info about your product and its main features, the plan of crypto coins issuance and distribution, the members of your team, etc.

Writing a white paper is essential because it helps you to show your good intentions.

Don’t ignore recommendations concerning hiring a professional writer or a marketing specialist.

Otherwise, your white paper will be of poor quality.

Step 5. Marketing

Promoting your campaign could be the hardest thing.

If your ICO is out of sight, it will fail to attract enough attention.

The excellent idea is to use a community to hype your product through the forums, ICOs lists, Reddit and Quora news portals, Linkedin or Facebook, messengers, etc.

Besides, you can resort to paid media, something that usually works.

Step 6. Get listed.

After creating your product, writing a white paper and developing a marketing strategy, your ICO is finally ready to enter a bitcoin exchange.

Every listing website imposes unique requirements for an ICO to accomplish to be listed.

In your request to the platform, you may need to state the name of your crypto coin, its symbol and logo, the date of its launch and provide access to the reviewed open code.

ICO statistics by industry
ICO Statistics by industry – https://icowatchlist.com/statistics/categories

Once your tokens are listed on one of the exchange websites, they can be accessed by potential investors and your ICO campaign begins.

ICO vs Crowdfunding: What Is The Best Solution?

ICO versus Crowdfunding?

The question remains open.

To clear it up, let’s move on to the detailed overview on the ICO versus IPO.

The Concept of ICO vs IPO

Launching an IPO is a rather lengthy process due to the compliance requirements. Usually, it is up to 6 months.

ico and ipo comparison
ICO vs IPO comparison

Despite being pronounced quite seemingly, ICO and IPO are polar opposites.

What they have in common is their goal to finance business development.

Traders are more reluctant to trust  IPO campaigns as they have significant legal support.

Even though there are still no legal restrictions for the ICO industry, it’s just a question of time.

The cryptocurrency market is at the top and, apparently, in 2018 it won’t slow down, quite the contrary.

We did our best to explore the similarities and differences between IPO and ICO in this article so that you’ll be able to take the right decision.

Do not consider this review as strong financial or legal advice you must follow, we just wanted it to be helpful and informative.

If we missed something or you’re anxious to add your ideas to this review, do not hesitate to contact us.

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