As we already know that IPO or Initial Public Offering is termed to the process in which a private corporation offers shares to the public in a new stock issuance. IPOs have been used as a way by the companies to raise funds or from public investors through the publication of public share ownership. The ICO or Initial Coin Offering, has become a popular term these days and is brought to us by the world of cryptocurrency.
In similar fashion to IPO, ICOs are a way of raising funds for startup companies, which involves creating and selling coins or tokens to cater to the development of a project. Therefore, they are a way for companies to raise funds and develop projects around decentralized applications. ICOs being directly related to Blockchain technology, they are highly shareable and can go viral, and hence, widely funded.
Like in the case of IPOs, ICO’s developers release a share of their total supply to reward contributors for helping them get funded.
What differentiates ICO from IPO?
IPO is carried out at a later stage when a company is financially stable and wishes to expand and develop to the public. The raised capital is put to use for the future growth projects of a company. IPO’s publication is a big step for a company. On the other hand, Initial Coin Offering (ICO) is generally initialised by startup companies to collect funds for implementation into their projects and developments.
A legal document known as prospectus is prepared by a company while issuing an IPO. The prospectus includes vital information about the company and must adhere to some standards of transparency.
Initial Coin Offerings do not involve any legal documentation. They include a white paper, an informal document which explains everything about the project and its purpose. But, unlike IPO, they are not obligated to create that white paper. Some of the companies participating in ICO don’t even have a product to present to the investing public. They just move forward by showing proof of concept or with a proof of stake.
REQUIREMENTS & REGULATIONS
To list its shares via an IPO, the company has to complete some pre-requisites including to have a track record of earnings, and a professional accountancy company must approve that. Finally, they need to get authorized by the concerned legal administration. There are no central authorities which regulate an ICO.
RETURNS : ICO vs IPO
In the case of ICO, companies do not have a track record or any regulatory framework. They offer tokens at a price that will rise with the trust put into the project. It is a promise that is done by the team, but still, the future is uncertain.
And in the case of IPO, they offer dividends from the company profit to their investors. It is the choice of the company whether to release dividends or not.
The IPO implementation is a tedious process because of the requirement of legal procedures and may take as long as six months. ICO ‘s duration depends on the company project’s nature and whether or not it issues documentary features such as white paper and smart contract. This duration may extend up to a month.
The Key Differences Between ICO & IPO Summed Up
ICOs offer international accessibility and operate on decentralized platforms which impacts the overall regulatory environment. Offering IPO is not allowed for every company or business. Only the ones which have been there for a while, are private and well-established are permitted to offer IPO. ICO provides new hope for emerging startup companies to undergo projects and new developments by raising funds from people holding coins, in the hope of receiving higher value than invested.