The popularity of IPOs (Initial Public Offerings) and ICOs (Initial Coin Offerings) has exploded over the past few years, with each of them offering investors a unique way to get involved with exciting projects early. But what exactly are IPOs and ICOs?
This blog covers everything you need to know about these two terms and how they differ.
What are IPOs?
Initial Public Offerings, refer to the process where a private company transitions to a public company and offers shares to the general populace in a new stock allocation, with shares being listed on a centralized stock exchange. Investors can then purchase the newly available shares with real-world money such as US dollars, euros, pounds, yen, and more.
This allows companies to raise equity capital from public investors, governments, and established corporations. This transition is also a crucial moment for any private investor. They can be sure their shares will go up as more public-facing investors and venture capitalists start throwing their hats in the ring.
How do IPOs work?
Before a company runs for an IPO, it is private, even if they post publicly. A pre-IPO private company's business presence usually grows from the involvement of a small group of industry connections, friends, and family that genuinely believe in the project. Thus, for any further growth, going public is the next natural move.
It is a big step in the right direction for a private company to become an IPO, giving them room for a more remarkable ability to grow and expand with access to more significant funding. This stage in a company's life cycle usually occurs when they reach a valuation of approximately $1 billion, also known as
Private companies can still achieve an IPO stature if their technology or products are future-proof. However, the company and its capabilities should meet specific listing requirements to gain this position.
What are ICOs?
ICOs primarily sell tokens to the public, while the founders remain as sole owners of their project. The second difference lies in reliability. Unlike IPOs, in which a company must see a certain degree of success before going public, an ICO can act as a "pre-sale" initiative for a project that has not even been launched yet. There are, however, two major differences that can set them apart. The first is that ICOs don't necessarily grant the public any ownership of the project.
Cryptocurrency, in its current state, is similar to the wild west. There is gold in the mountains, but little regulation around who gets to mine, sell or trade it. And scammers will go to extreme measures to get a hold of your gold. Anyone can create an ICO, make a pretty website, slap a whitepaper on top of it, and create false advertising across the web to siphon money from potential investors.
This indicates how many ICOs can make false promises and rug-pull (withdraw all of the money invested, causing the coins' value to go down to 0) entire communities without batting an eye. So, you should always be mindful before investing in an ICO, and do enough research on factors such as the team members, intentions, goals, and project longevity beforehand.
In short: Buying into an ICO rewards you with crypto coins in return for your money. The price of these coins can rise drastically as the company follows through on its promises, roadmaps, and technology, resulting in a good return on your investment. At the same time, the price can also significantly decline if the project fails in its initiatives or if its funding gets pulled.
Best practices before investing in an ICO:
Look at the product leads' history and the company's crypto wallet (aka "Dev Wallet").
See if team members are real people with social media accounts or a credible portfolio of prior work or projects, and check if they are who they say they are.
Check whether the coin or company has registered with the SEC or other verified crypto resources like Certik Audit.
See if the company has followed through on the roadmap present on their website, and do thorough checks online for product updates and company reviews.
Go on the company's community groups like Telegram and discord, and ask the admins or community managers ask questions. Usually, if you receive short-winded answers, or if they come across as defensive, then you're in the wrong place and should take your money elsewhere. Transparency should be your top priority when dealing with an ICO.
ICOs offer investors a way to get involved with startups early, providing a higher potential return on investment compared to larger, more established companies. Additionally, ICOs often offer discounted rates on tokens, making them globally accessible with a low barrier to entry.
But beware: ICOs will always be susceptible to scammers and fraud due to their ease of creation. So always do enough research and fact-checking before investing.
IPOs and ICOs are great ways for investors to get involved in startups, with a few key differences separating the two. IPOs offer more stability and are often associated with well-established companies. In contrast, ICOs offer discounted rates on tokens and provide a low barrier to entry for investors from all over the globe. Remember to always do your research, ask a lot of questions, and make informed choices before investing.
*All blogs are opinion pieces and do not necessarily reflect the views of PyxelChain Technology Corporation