Crypto crowdfunding, also known as Initial Coin Offering (ICO) is an easy way for startups to raise funds. ICOs are the cryptocurrency industry’s equivalent to IPOs (initial public offering). If a startup is searching for new ways to raise funds to create an app or launch a service, crypto crowdfunding is one of the best ways to raise funds. The startup needs to set a goal, share their project with investors, and start raising funds via Bitcoin.
Once a startup shares an ideal, interested investors can purchase tokens, and get new ICO tokens offered by the company. The tokens can allow the investor to gain early access to the company’s service or product or represent a share in the project or company.
How crypto crowdfunding works
When you want to raise funds for your startup through crypto crowdfunding, you should create a whitepaper outlining the following details:
- The scope of the project
- The purpose of the project upon completion
- Capital required for the project
- The number of virtual tokens the investors will retain
- Currency accepted
- How long the cryptocurrency campaign run
When the ICO campaign starts, project supporters and enthusiasts buy tokens using a digital or a flat currency. The coins are also known as tokens, and they are similar to the shares investors buy during an IPO. In case the funds raised don’t meet the minimum capital required by the startup, the investors will get a refund of their money, and the ICO campaign will be considered unsuccessful. On the other hand, if the target for the campaign is met within the set timeframe, the startup can go-ahead to pursue the project.
Benefits of crypto crowdfunding
The reason why crypto crowdfunding has been growing in popularity is the benefits both the startups and investors get to enjoy. Most of the benefits for the startups are also advantages to the contributors. And, these benefits motivate more investors to choose crypto crowdfunding over other options to invest their capital—and this is a good thing for startups.
With that, let’s look at the major benefits of crypto crowdfunding
Liquidity
Liquidity is a major and common challenge for investors searching for new investment opportunities. In some investment opportunities, both the business and investors cannot access the funds for several years. However, crypto crowdfunding allows investors to enjoy high liquidity, and real-time pricing is normally based on the project’s current value.
Regionalization
Crypto crowdfunding is available to everyone since most campaigns accept cryptocurrencies. The only requirement that investors should meet is to transfer the funds within the required time to buy the tokens. This is a major plus for any startup using ICOs to raise funds since they don’t have to wait for long for the investors to transfer funds.
Openness
Not only does crypto crowdfunding allow anyone to invest, but investors also don’t have limitations on the time they can make their investment. This makes crypto crowdfunding different from the conventional methods of funding startups, where investors have a challenge in making investments unless they have close contact with the founders. As indicated earlier, your investors come from different places across the world.
You can meet your target within a short time
This is another benefit that startups enjoy when they use a crypto crowdfunding platform to raise funds. This method allows you to raise all the funds you need within a short period, thus allowing you to focus on developing your service or product.
Also, it’s important to note that using crypto crowdfunding to raise capital for your startup comes with one major challenge—raising a large amount of capital for your startup risks overspending and misalignment of the founder’s and investors’ incentives.
Therefore, startups shouldn’t raise a lot of money more than they need upfront. The best way to go around this is for your startup to go through several phases of financing, where each phase shows a milestone. By achieving these milestones, your investor’s confidence towards your idea continues to grow, which motivates them to fund your business towards achieving its goal.
Bottom Line
When seeking funding for your startup, crypto crowdfunding is one of the best ways to raise your capital. Although crypto crowdfunding has its potential downsides, its benefits are far much better and can help you realize your business dreams within a short time. With the potential support of interested investors, your crowdfunding campaign cannot disappoint you.