Beginner's guide to cryptocurrency fundraising

When a firm reaches a specific stage, it raises money to fund the next stage. When companies need more capital to scale than they have, this happens.

Crypto companies aren't immune but have more options. A crypto company that wants money must raise funds. Too early or too late in its development, a firm may not qualify for standard funding methods like IPOs and bank loans.

Cryptocurrency and blockchain offer new ways to raise funds.

What's cryptocurrency fundraising? How can organizations use fintech? Crypto fundraising vs. regular fundraising:

Let's start with the basics: venture money and angel investors. We'll compare the initial public offering (IPO) to initial coin offers (ICOs), initial exchange offerings (IEOs), and security token offerings (STOs).

Traditional venture finance and angel investing

If a company needs financing, its owners may turn to VC firms. A venture capital fund pools money and invests on startups. These firms find investors by sending out prospectuses, which describe the rewards and hazards of an investment. Investors commit funding if they like a project.

Fund managers analyze various business ideas to locate high-return businesses. In exchange for capital, they want firm shares so they may quickly profit.

As a business owner, you should know that VC funds are short-term. These companies aim to quickly sell their equity for a profit.

Yes! If venture capitalists support a business, it suggests they're optimistic it will grow swiftly. The company may have to sell a stake.

Angel investors are wealthy people who invest in startups. Their investments focus on entrepreneurs and their vision, not the business's viability. Instead of a rapid exit, they want to generate money from the stock they may or may not own.

Cryptofunding history

Cryptocurrency fundraising exploded in 2017. ICO was a fad among experts and participants. Thousands of ICOs launched. Most failed catastrophically, as expected.

Some became millionaires. To many commentators, the ICO euphoria resembled the dot-com boom, when too much speculation generated a bubble and many internet enterprises failed. In 2017, experts expected another crash, but it never happened.

ICO mania led to alternative crypto financing, nevertheless. STOs, IEOs, and IDOs. Below, we'll discuss each.

IICOs

Initial coin offerings are cryptocurrency's IPOs (ICO). An ICO helps a company fund a new app, coin, or service. Let's first discuss what an ICO does, then the differences.

The white paper is the most crucial marketing document for blockchain and cryptocurrency firms seeking investment.

White papers are aimed to persuade and give factual and technical proof that a specific service is superior to solving a business problem.

The white paper describes how much cash is needed, a quarterly plan, the tokenomics of the firm (token distribution, including the percentage of tokens the founders want to keep), and the fundraising effort.

Launching an ICO
Here's how to fund an ICO:

Determine if the project needs an ICO or if it's the best way to finance it. Not every company needs an ICO. Even if an ICO is quicker to begin than a standard IPO, it shouldn't be used to avoid restrictions. Any company planning an ICO should be concerned about token utility. If it's solely aimed to facilitate the sale, an ICO is the wrong choice. If the business token has a use case, move to Step 2.

Users should ensure it suits their business strategy and model.

Collaborate. If the token has a use case, consult experts. The product must be developed and marketed. The squad might have advisors. ICO advisers should have launch experience. Many crypto ventures debut without consultants, but it's rare for major ones.

Check local ICO regulations. Some countries have strict laws on investment securities. China bans ICOs. Users should avoid regulatory issues. This prevents legal and technological roadblocks.

Plan the project. The project roadmap provides a timeline. This shows them the project's progress and what to expect. Investor confidence should remain high if the team meets milestones. This helps raise funds and keeps the cryptocurrency community active and excited.

Publish white paper. Examine competitors' marketing materials. This involves studying successful and unsuccessful ICO white papers to learn what makes a good one.

The white paper builds investor trust. It should include the project's purpose and challenges solved. Users should explain why the team can solve them. Mention details that will convince an investor to back the idea. Investing in a crypto white paper writer may be worthwhile.

Get online. Every crypto project needs a website. The website promotes. Any potential investor can read the white paper there. Community building will also help. Crypto influencers might be contacted to promote a project. Finally, ICO listings are crucial. Many serious investors check these listings for initiatives to back.

Choose a token model. Dutch Auction, Capped or Uncapped auctions with fixed rates are available. Hybrid models are also available. ICOs can be staged. Before the ICO launches, there may be a presale or private sale. Ensure investors and community members may easily buy tokens. A project's inception can be derailed by community reaction over perceived inequity.

Start minting tokens using a smart contract. Early project details should specify which blockchain to use. Ethereum was the first blockchain to deploy smart contracts, therefore most projects use it. Today, many rivals have faster throughput and alternative architectures.

Users should engage a smart contract developer. The developer can prevent exploits. So, there are no ICO launch-day surprises.

ICO. This concludes fundraising. Whether the ICO reaches its fundraising goals will determine much. If so, keep focusing on the community and project. Plan beforehand. Rest is easy.

Potential investors can buy ICO tokens with fiat or a prespecified digital currency. Tokens are like company shares. An IPO campaign is run by a private corporation. For an IPO, a company must submit its accounts to public inspection, risk losing control, and incur higher reporting costs, among other requirements. A bookbuilder leads the IPO by trying to set the price. The underwriter asks investors how many firm shares they want and how much they'll pay.

An IPO requires a third-party audit to guarantee all financial transactions are legal. This protects investors, improving project credibility.

IPO vs ICO

As demonstrated in the table, starting an ICO is a simple process, and any crypto-savvy blockchain engineer may do it. Project owners can create an ICO within days.

Considering these considerations, it's easy to see how 2017's ICO mania ended. Most "next best thing" efforts were poorly planned or rug pulls (Rug pulls are when a project team intentionally runs a pump and dump scheme by convincing investors to buy, thereby increasing the price rapidly before the team dumps their holdings onto the market, driving prices crashing down.) Many people launched ICOs because anyone could. So many founders waited for a token price bump before disappearing.

IEOs were created to protect investors and enhance confidence in token issuers (project owners)

First-time IPO

An IEO is like an ICO, but it's issued through cryptocurrency exchanges. The project owner can rest easy knowing that any investor with exchange access can buy their token. Exchange backings can give investors peace of mind if an exchange is trustworthy and well-established.

Direct exchange coin management is expensive. This includes a listing fee and a portion of token sales. The transaction lends the enterprise its reputation for financial gain.

This varies from an exchange listing a project's coin. An exchange may list a coin if it independently judges the project worthy.

Warning!

Token sale

Security token offerings are a cautious crypto fundraising method. This approach regards tokens as securities, as the name implies. They follow security rules.

KYC and AML regulations may apply. KYC and AML procedures ensure financial services recognize and minimize risks.

DEX IPO

Decentralized exchange (DEX) DEXs are market makers. Smart contracts execute fund transfers without a third party. KYC and AML are optional. When the hammer falls, they may face stricter controls. To get the coin, all someone needs is a digital wallet address.

First DEX offering steps (IDO)

Compliance risks

As with any new sector, users should be mindful of rising monitoring. Users should review the legal consequences of conducting an ICO in their local regions because regulatory agencies define cryptocurrencies and crypto assets differently. This reassures project owners and investors that their initiatives won't face legal issues.

Public blockchains are visible and allow consumer identification, but obfuscation mechanisms are increasing to protect crypto-asset owners' identity. If there is no centralized clearing hub or exchange, no institution is responsible for collecting and confirming KYC data, like customer names and addresses, or monitoring transactions for suspicious activity.

New global financial crime laws aim to close gaps in supervisory and regulatory frameworks and combat money laundering. Money laundering converts unlawful proceeds, such drug money, into legitimate funds.

Some nations have Anti-Money Laundering legislation, but some have stricter measures. Regulators use AML to keep criminals out of the financial system. Risk appetite differences allow bad actors to engage in regulatory arbitrage. This may lead to less formalized work environments that are more agile and innovative. Others may desire more regulations to show their safety and confidence.

Future

Traditional gatekeepers are intrigued by cryptocurrencies and blockchain technology. Regulators, banks, and financial institutions. This sector is riddled with frauds and low-quality ventures, thus laws may be needed. Regulatory protections and more stability may not be a terrible thing.

Since ICOs, crypto developments have advanced quickly. IEOs, IDOs, and other new fundraising ideas are gaining ground on ICOs. Future fundraising technologies? Unknown. The regulatory landscape and crypto/digital money inventiveness will shape the sector. Definitely. Hopefully, they'll consider project investors and issuers.