Visualizing the Rise of the ICO

Visualizing the Rise of the ICO

If you ask any investor about Initial Public Offerings (IPOs), you’re not likely to get an extreme range of opinions.

That’s because IPOs have been around for centuries, they’re heavily regulated, and they usually are reserved for companies with impressive traction as they transition to the public market through a storied exchange like the NYSE or Nasdaq.

During times of extreme market froth, like the Dotcom bubble, a newly public company can be the subject of intense amounts of speculation. However, in relative terms, most IPOs are fairly benign.

Companies going public simply have a very abbreviated track record, which makes them difficult to value by the market.

Introducing the ICO

Today’s infographic comes to us from Coinlist, and it showcases the long-lost cousin of the IPO: the initial coin offering (ICO).

At the most basic level, an ICO is a crowdfunded offering of a newly issued cryptocurrency that can be used as a source of capital for startup companies. Investors buy these coins or tokens with legal tender or through the exchange of other cryptocurrencies such as Bitcoin or Ethereum.

And ICOs have taken off – see the incredible video on the explosion in ICOs for yourself.

ICO vs. IPO

Here are some major differences between ICOs and IPOs.

Risk
For a newly-listed public company, the market has limited information to assess – but usually the company has some known traction: sales, revenue, growth, etc. New listings can still be risky, but most still have some intrinsic value, even if that is just an asset at book value.

ICOs, on the other hand, are usually used to raise capital for a new idea or technology. Ethereum, which ICO’d in 2015, is a blockchain-based technology that focuses on enabling smart contracts and decentralized apps. While it wasn’t “proven” at the time of its ICO, Ethereum is now a wild success.

The only problem: not all new technologies or ideas are proven, and some will certainly crash and burn. Further, some will even be scams. Thus, the level of potential risk with ICOs cannot be understated.

Regulation
Newly-listed companies are highly regulated, for better or worse.

ICOs are not regulated, though the SEC has stated that it will treat ICOs as security offerings in some situations. Meanwhile, other countries like South Korea and China have banned ICOs altogether, at least temporarily.

Democratization
While early-stage venture capital and IPOs are traditionally much more difficult for the average person to get exposure to, anyone can buy into an ICO.

In this sense, the ICO offers something similar to crowdfunding: the ability for projects to raise money from a strong community of regular people. This community-based approach can also enable non-profit ventures to succeed.

A Full List of Pros/Cons

For a much more in-depth list of the pros and cons of ICOs, this article by Outlier Ventures provides some fantastic insights.