You surely heard the terms Crowdfunding, Equity Crowdfunding and ICOs. While there are several points of contact between the three, there are also crucial difference.
Let’s have a look of each of these in detail.
What is Crowdfunding?
The crowd is activated to transform an idea into a real product, and it does it by bringing the needed capitals. You have a music band and you want to produce your first demo? You have invented a pair of sneakers made of recyclable plastic? Crowdfunding allows you to pitch backers to provide you with the needed funds to activate your project, in return of a series of perks. These can go from a digital “thank you” to a stock of the products or service will be brought to life.
Unlike the other two, crowdfunding campaigns can be initiated also by privates and not only by startups.
What is Equity Crowdfunding?
The process is the same as crowdfunding where individuals provide the money to face a capital need. The key difference liaises in the return expected for this financial support. While, in crowdfunding, backers are not seeking a financial return, individuals approaching equity crowdfunding are investors expecting a profit.
They provide money to a business in exchange of shares of the company and, if the company will be successful, they can sell their share for a premium.
Historically this was an investment opportunity limited to venture capitalists, angel investors or accredited investors with possibility of investing over $100,000.
With platforms like Bloomio, this opportunity has been spread to everyone who is willing to invest starting from just 50 dollars.
Company raising funds are startups, at different level of maturity, and before initiating a fundraising campaign they provide evidence of their KPIs.
What are ICOs?
ICOs or Initial Coin Offerings, are initial offerings of digital currency ventures. ICOs are a funding instrument used to trade future digital currency for digital currencies of a present value. A percentage of the cryptocurrency is sold to early investors of the project in exchange for legal tender or other digital currency, usually Bitcoin or Etherum.
Unlike in equity crowdfunding, investors here are not receiving an ownership stake of the company, they are purchasing its digital currency, gambling on the future money it might achieve.
To date, over $3.5 Billion has been raised through Initial Coin Offerings[1]. While there have been successful ICOs such as Ethereum which initially raised $18 million and subsequently rose to a market cap of over $1 Billion[2], the investment is not regulated and there have been several cases of scams like Confido[3] and PlexCoin[4].
In Bloomio we decided to deal with equity crowdfunding projects because we aim to deliver a return to investors while allowing them an informed financial decision.
[1] https://www.coindesk.com/ico-tracker/
[2] https://coincodex.com/article/13/a-timeline-of-the-most-successful-icos/
[3] https://www.cnbc.com/2017/11/21/confido-ico-exit-scam-founders-run-away-with-375k.html
[4] https://www.theverge.com/2017/12/5/16739348/sec-plexcorps-plexcoin-ico-scam-asset-freeze-charges
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