Some start-up companies are turning to initial coin offerings, also known as ICOs to raise capital. This relatively new way of raising capital is somewhat different from initial public offerings (IPOs). Unlike stocks, crypto crowdfunding ICOs do not give the investor any ownership rights in the organization. It is also worth noting that ICOs are different from bonds considering that ICOs are not about lending money to the business.
What are ICOs?
An ICO is a virtual coin that holds a certain monitory value. These coins are created by investors planning to raise capital for the business. ICOs are rolled out on an online platform and investors are given a chance to buy them using a specific currency like the US dollar or virtual currencies like bitcoins. In most instances, IOCOs are mostly associated with startups. Potential investors are given a white paper, which has every detail about the ICO and the business structure.
Questions to ask before investing in ICOs
Are the persons selling the ICO registered professionals?
When it comes to matters ICO, the seller is just as important as what you buy. As such, be sure to verify the professional background of the individuals involved in the offering. For instance, if the ICOs are securities, the individuals selling them are obliged to have a certain license. He or she should be registered under the state and federal securities laws. If you are any doubts about the credibility of the sellers, do not invest there.
How can I get my money back?
Any serious investor should be interested in knowing how he or she can get their money back. In this regard, the information provided in the ICO whitepaper should explicitly lay out the processed involved in getting your money back. In most instances, you can cash the tokens for a refund or sell them to secondary buyers. If possible, seek clarifications about possible restrictions on the resale.
What does the company do?
ICOs are fairly technical. As such, you should be in a position to read and understand the information provided by an ICO issuer or those promoting it. Here, you should be looking at things like how the company intends to use funds raised by the ICO, business goals and timelines, and the development roadmap among other things. A clear understanding will undoubtedly help you make an informed investment decision before channeling your funds in this direction.