IPO (Initial Public Offering)
The IPO is the foundation of our modern financial system. It’s first adopter was the Dutch East India Company, in 1602. This allows a company to give up holdings of their business, available to trade on the stock exchange, and is called going public. An IPO raise creates an opportunity for people to invest in a company, and on the other side of that same coin, a chance for companies to fundraise.
Before a privately owned company can conduct an IPO it must be approved by the Securities and Exchange Commission (SEC) and require a fee on sales, which is why you see companies like Uber and Snapchat gaining success and then going public.
There was a time when you needed to open a brokerage account and there was a process of either investing in individual stocks or stock mutual funds. Nowadays, as a way of encouraging investing, there’re apps that allow you to invest in small or large ways in stocks like Robinhood, which also is commission-free. (DNA has no affiliation with this product.)
Regulations were put in place after the Great Depression to protect novice investors making most investments available to ‘accredited investors’ ($1M in net worth, or $200k annual income for two or more years). The irony is, protecting the poor from an opportunity to become not-poor, is… not exactly a protection. There was a clear need for access to wealth from the non-accredited.
The JOBS act provided access to investment vehicles that were previously unavailable to average people. Exemptions began to emerge in the form of Reg-A (tier 1 up to $20M; tier 2 up to $50M; US & Canada companies), Reg-D (no raise limitation), and Reg-S (non-US domiciled). This can get complicated so don’t worry if you’re feeling dizzy. It’s about to get even zanier.
ICO (Initial Coin Offering)
Then in 2013, came the ICO. Similar to an IPO, an ICO is a way for the public to invest in a company, but their investments are in the form of cryptocurrency. An ICO offers a new cryptocurrency in exchange against the already established Bitcoin or Ethereum. So to be more clear, an ICO isn’t giving up shares of their company, but instead offering coins of equal value to their investment. Also, without the regulations necessary that comes with an IPO, you see a lot of younger tech companies/start-ups instituting an ICO, which is a riskier investment to engage in, since there are no regulations to protect the investor.
STO (Security Token Offering)
Due to the lack of regulations, ICOs have cost investors, which comes as no surprise because it is a gamble. As an STO, it is a very similar system in which investors are given digital tokens, instead of receiving shares of the company. But in this case, unlike an ICO, these are backed by actual stocks, bonds, or funds. This offering gives investors a safer exchange, which could be a much more appealing investment for someone that isn’t as informed. They can at least feel more comfortable knowing there are regulations to protect them.
This article lists all STO’s up to December of 2018. Take a look to get a better idea of how this arena is shaping up.
IEO (Initial Exchange Offering)
With an ICO one might feel like they are investing in a company, yet, it remains to be seen how coins will stack up against traditional shares. On the other hand, one might look to an IEO, where it is fundamentally just an exchange of cryptocurrencies. IEOs are handled on a cryptocurrency exchange platform, while an ICO is handled by the developers themselves. This makes it easier on the company to not have to worry about the marketing campaign of an ICO, when the exchange platforms do the heavy lifting marketing these tokens. This is also a safer alt-coin investment when considering there are many more regulations put in place and the websites that host these transactions are heavily protected.
Investing in ICOs, STOs, and IEOs is fairly new and is aggressively increasing in popularity. Startups and cryptocurrencies are broadcasted into the stratosphere of media these days in ways I can only assume would not have been years ago. The fact that we intake all of our news in condensed spaces, I can read about the success of a new cryptocurrency, the score of the last Dodgers game, and some international crisis all on the 6-inch screen of my iPhone. I would imagine years ago, to look for investing insights, you would have to search for it.
As anyone will tell you in investing, there’s no way of predicting the future, so there isn’t a right or wrong when choosing which type of investment to look into. But without a doubt, there are winners and losers.
If you have questions about crypto, blockchain, or marketing a launch, drop them in the comments. And thank you for reading.