Ines AissaniIPO, an ICO, an STO, an ETO, an IDO…Are you lost?
No worries, we're here to explain
As you know, there are new ways to finance businesses today. In the past, companies wishing to obtain financing had the choice between bank loans, peer-to-peer loans and the sale of shares on the stock market. Basically, these were the only ways to raise funds for companies. When we think about it today, we realize that we have made a lot of progress in recent years thanks to blockchain!
Today, we are experiencing a real revolution in business financing methods. This is also why our time is wonderful, I think.
In reality, it is blockchain technology that has made it possible to broaden the field of possibilities. Even a very small startup, still in its infancy, can raise (incredible) funds thanks to blockchain.
It is therefore the purpose of this article to introduce you to the different new ways of raising funds for a business.
Specifically, we will talk about IPOICOs, STOs and ETOs and how they differ from each other as fundraising models. Recently, these are the IDO (Initial Offering) which mark the trend.
What is an Initial Public Offering (IPO)?
In other words, it is an IPO. The initial public offering (IPO) is one of the most well-known and established fundraising methods. It is also the oldest method of fundraising. An IPO consists of a company selling shares (parts of the company) to investors. These same shares will subsequently be exchanged/traded on a stock market.
The IPO, although advantageous in financial terms, is subject to very strict rules and strong regulations, because it is external investors who also own a share in the company. Companies thus lose some of the control they had over society.
When a company does an IPO, very clearly, it means that its sales and profits are strong.
What is an Initial Coin Offering (ICO)?
In French, this would be the Initial Coin Offering (ICO). We can say that it is the equivalent of an IPO, but with the difference that here, it is in the cryptographic market that it takes place. ICOs involve the sale of tokens to individual investors. The latter buy tokens from a project via a cryptocurrency such as bitcoin or Ether.
These tokens can belong to a blockchain belonging to the project or be distributed via another network, as in the case of ERC-20 tokens which uses the Ethereum network, for example.
ICOs differ from IPOs for another very important reason. Unlike an IPO, the ICO does not give power to token holders. They are simply the detached investors, shall we say, of the project.
Indeed, in the context of ICOs, investors do not obtain the specific right nor the possibility of participating in the future projects of the company. On the other hand, in an IPO, investors can have a say on the company's projects for the simple reason that they also have voting rights.
Once retail investors buy a token from an ICO, you should know that they only have the tokens. They cannot participate in company decisions.
Due to its still unregulated nature (for the moment) and relatively easy to implement, the model of ICO can also be launched by dishonest people who may seek to defraud investors. Therefore, ICOs are investments considered high risk if one does not know how to observe real and solid projects. I invite you to read the article which explains how to recognize scam ICOs.
What is Security Token Offering (STO)?
The Security Token Offering (STO).
It is precisely because of numerous cases of scams that jurisdictions around the world have become interested in ICOs. It was necessary to find a legal framework to curb possible scams and scams. Due to new legal regulations issued by financial regulators around the world, new crypto financing models have emerged. Typically, the STO is an equally interesting new model.
Security token offerings work the same way as ICOs, except that investors buy a regulated financial security in token form. Companies offering tokens as part of STOs are no longer simple tokens whose value will depend on supply and demand. No, here, these are tokens backed by real assets, such as real estate, precious metals, etc. In this case, the purchase of tokens offers the same guarantees as corporate bonds, within the framework of STOs.
Although owning an STO is much more restricted than an ICO, companies are increasingly attracted to this fundraising model because it provides a solid legal basis for investors. Likewise, the latter feel more secure by investing in STO projects.
What is Equity Token Offering (ETO)?
Equity Token Offering (ETO).
This is the latest type of crypto financing. As the name suggests, ETOs are offerings of shares in the company. Thus, investors can buy shares of a company (equity in English) which have the form of tokens there again.
These are symbolic participations which represent the investor's right to the company's assets. There he can vote, for example, on company decisions.
The advantages of these new cryptocurrency financing models
Of course, the sector is still very new. This explains why, at the level of the law, it is not yet optimal or complete.
However, we are already seeing the incredible benefits for all parties in reality.
- Anyone can become an investor and happily participate in projects they want to support
- Businesses are no longer stuck in restricted fundraising formats.
- Young companies can raise money without even having to develop the product (this is an advantage and a disadvantage, actually).
- The administrative and legal procedure is completely simplified and digitalized.
- We can imagine that these will be new financial tools that are easier to implement.
As the crypto economy evolves, one might even wonder if IPOs are not already being replaced by these new types of corporate financing.
Companies facilitating these new fundraisers:
To our delight, there are more and more companies dedicated to managing these new types of cryptographic financing:
- Centrumcoin
- Republic (by far my favorite project in several respects)
Alternatively, you can also go further and learn more about the “ crypto launchpad » and crowdfunding platforms like Guy Finance, for example.
