With the initial coin offering (ICO) sector becoming such a popular route of raising money for the operations of a company in recent times, it seems that everyone is looking to get started with their own offering.
However, there are now many leading crypto investors who are advising companies to not hold an ICO and to go down more traditional methods of raising funds. There are a few different reasons for this and it will be interesting to see if there will be a significant shift that takes place.
Why are these people advising companies to avoid ICOs?
When firms see the likes of Telegram making almost $2 billion from their token sale, it makes them sit up and take note. They realise how much money could be in this form of fundraising and they are looking to get in the action.
However, there are many significant drawbacks involved that they do not consider. In basic terms, due to the lack of regulation in the ICOs sector as of yet, a lot of companies in the space are falling foul of the authorities and facing hefty lawsuits from the likes of the United States Securities and Exchange Commission.
The environment is still blurry and they could be opening themselves up for serious issues in the future.
A lot of the projects pursuing ICOs have no need to hold an ICO. While of course there are projects that are legitimate and need to do token sales, they are by far in the minority.
If a platform doesn’t need its own token in order to operate effectively, the route these key crypto figures are advising is that of equity funding, the traditional venture capital route. There is already plenty of proper regulation and compliance principles in place that cannot be mistaken or misinterpreted.
There have been a lot of issues when it comes to the classification of tokens, with many ICOs falling foul of the authorities after they have because they thought they had utility tokens when in fact the authorities viewed them as being securities tokens, which of course meant that this company had inadvertently violated securities laws.
There is also something to be said for receiving these vast sums of funding all in one go. This often leads to mismanagement of funds despite the team’s best efforts. It would be more ideal to receive this funding in certain periods once milestones have been reached.