An Initial Public Offering or an IPO is the name of the process through which a company lists itself onto an exchange and raises money for itself. By the same token, an Initial Coin Offering or an ICO is the newly coined term for the same process. But the differences are huge. An IPO is always dependent on the investment bank taking it public. It’s also dependent on the exchange rules and regulations, to list itself for its shares to be traded. Furthermore, an IPO can only be listed in one or two or three exchanges the most simultaneously and the access to the shares is limited to the investors in that particular country, usually. It’s up to the investment banker as to which company sees the daylight of the IPO and how many shares which investor gets. What the value of the company is, also decided by the investment banker. To put it simply, EVERYTHING is controlled by the investment bank. From A to Z. Research. Placement. Valuation. Information. Size of the block trades. Liquidity. Expansion permission. You name it and the investment bank controls it.
More importantly, an IB only caters or should I say, mostly caters to its big clients. Small investors, even though they outnumber the big clients, are never catered to in the same manner as a big client. It is the most unjust process of taking a company public where the small investor has no say.
Now let’s come to the ICO process. A company decides to raise money. It presents its plans to the “world”, yes the world and not just the investors of a particular country. Knowledgeable investors, and novice alike have the right to accept or reject the company. Some believe in the company and some don’t. The ‘Wisdom Of The Crowd” scientific method is applied. You decide how many shares you want to buy. You are directly in control of your investments. A small startup from the mountains of Mongolia has the same opportunity as a big startup created in Silicon Valley, to raise money from the public. Its shares are listed and traded on multiple Crypto-Exchanges around the world and 7 billion people have access to it.
In December alone of 2017, $1 billion was raised through ICO’s in one month, taking the total for the year of 2017 to above $4 billion raised through ICO’s. Not a miniscule amount even by Wall Street standards. Some ICO Tokens went up as high as 2000% in 2017. Yes 2000%. Forget BitCoin. ICO’s will be the new wave. Companies will raise money through this process, world will become the single exchange. 7 billion people could become possible investors. Supply and demand will reign supreme. Billions and billions in profits will be created. Flow of information will not be controlled by few institutions. Even a 20 year old kid with empty pockets now will have the chance to create a company that can turn into a trillion dollar company in 20 years, for example.
There will be a lot of things that investors will have to look for before investing in an ICO and I will try to keep writing articles and continue to educate all of you from time to time. ICO’s will require more knowledge based investment strategies than before. Founders credibility, idea viability, country of origin of the idea company, expansion processes, advisory panel, product need, everything and more will have to be looked upon, to name a few things. I will try to write as many articles as possible educating the investors. Because I feel that this is the only investment where the price of the Token will not be able to be manipulated by an IB. It will be based mostly on supply and demand. And I hope that 2018 and beyond become the most profitable years for you. Ameen.
Author: Mir Mohammad AliKhan