You’ve heard of initial public offerings of stock? Well, there’s now a new, and potentially explosive, way to raise capital for your business: the initial coin offering.
The upside of the ICO? There’s no filing requirements, no Securities and Exchange Commission rules, no quarterly reporting and no required public disclosures. The possible downside? The money you raise will be in digital cryptocurrency and your investors will buy “tokens” instead of shares. Sound scary?
Not to a company called Bancor. The Israeli-based company, according to this report in The CoinTelegraph, is very familiar with digital currencies – so much so that it has developed a unique protocol that can enable just about anyone to develop their own digital “smart tokens” (or cryptocurrency) and then help them to make it marketable by giving it liquidity and a market price from day one. The company does this by allowing your cryptocurrency to be able to be converted to other currencies (including the U.S. dollar) “through a new kind of economic model which uses an algorithmically discovered price to balance buys and sells” using an “innovative reserve mechanism.”
Bancor’s platform is built on blockchain, the hot technology that uses a “digital ledger” for chronologically recording movements of money. Blockchain is being looked at closely by most major banks and software companies as a way to more securely manage online transactions.
If you want to do an initial coin offering you first come up with a business plan and then you issue tokens. The tokens are like shares. The investors who buy your tokens hope that your company’s plan succeeds so that the value of your tokens grow. That’s what the investors of Bancor, who include noted venture capitalist Tim Draper of Draper Fisher Jurvetson, are hoping for.
Real money is being raised here. According to this report from Crypto Coin News, Bancor issued its own tokens and raised about 390,000 Ethers (a crypto-currency that competes with Bitcoin) in its initial coin offering. That’s $153 million at the current exchange rate. The whole thing happened online and was planned to occur over an hour – but was extended to three due to demand (and delivery backlogs). There were about 11,000 buyers with one purchasing almost $27 million worth of the company’s tokens.
Sure, Ethers, like Bitcoin and other cryptocurrencies, have seen significant fluctuations in their value over the past few years. But these digital currencies are hot right now. If you don’t believe me, check out this previous piece I wrote about how $100 of Bitcoin purchased in 2010 is now worth $75 million.
So what does Bancor plan to do with its pile of digital cash? Pretty much what most start-ups do – spend it on development, marketing and operations. But 20 percent has been put away in a reserve “to further improve the liquidity” of its tokens. That seems like a good idea.