How ICOs Are Disrupting Traditional Venture Capital


Living in a modern era where technology is the mastermind of every key sector of the economy, the financial field is one sector that has experienced a real overhaul. The transfer of cash, payments and even investments are done digitally. This trend has led enterprise capitalists to invest in ICOs.

ICOs, or traditionally known as Initial Coin Offerings, is a process where funds are raised in an unregulated manner for a crypto-token. In most cases, cryptocurrencies like Ethereum and Bitcoin are used in this venture. In other words, this type of investment is somehow similar to the current IPO (Initial Public Offering) where investors purchase shares in companies.

This type of investment has come at a time when venture capitalists are decentralizing the world for equal access to everyone. During the initial stages of decentralizing finances, crowdfunding was a significant climb in the ladder of democratization. Still, the majority are referring to this venture as an ICO token because everyone can invest in this venture which acts as a unit of exchange to raise funds to different parties involved.

How do ICOs work?

If you have read the Ethereum smart contract, you will know that it says, (for example) you are investing one bitcoin worth $500. Upon the termination of the crowdsale, you get $500 worth of the token. In other words, compared to the traditional capital venture where certificates were sent to you to sign, the smart contract sends these token to represent the company security.

This is one way in which ICOs are disrupting traditional VC. However, if you’re a VC, you will also know that lack of liquidity is a significant hindrance to the ecosystem. And for this reason, investors are switching to ICO as a solution to this problem.

In some, if not many ways, Ethereum is still a prototype. The killer application is one undisputed reason to why the price of Ethereum has surged and is doing well. Initially, during the crowdsale, you were supposed to keep the log of everyone’s investment and a ledger manually prior to issuing investors with coins.

Nowadays, during crowd sales, Ethereum is being used successfully and, for this reason, lots of ICOs are taking place. As a matter of fact, this venture is rolling out to becoming the platform to capitalize on startups.

Another way in which ICOs are disrupting the traditional Venture Capital is through immutability, transparency and the safety of managed Blockchain assets, and the possibility of having assets traded on different exchanges. That is if the focus is on Equity Tokens. Be that as it may, it has given rise to some possibilities like ETFs, funds or easy creation of indexes.

With upcoming ICOs, there must be some sort of due diligence. As a matter of fact, renowned platforms are already offering this independently. In so doing, the tokens become liquid as soon as they get listed on the stock exchange. Moreover, trust, transparency, and the cost of all parties involved is reduced because the Blockchain acts as the de facto custodian of assets.

Even though there are concerns about the implication of substantial losses, frauds and how regulations will affect the atmosphere, ICOs are openly a promising pecuniary assessment.