Funding: The Block-chain Way.

One new development to arise from the world of blockchain is a new concept for raising capital. The ‘Initial Coin Offering’, or ICO, also known commonly as a ‘token sale’ is drastically changing how startups raise funds.

Conventionally, a startup would pursue funding from a Venture Capital companies but now, thanks in large part to blockchain technology that simplifies token sales, it is possible to raise huge amount directly from retail and institutional investors by selling tokens. So much so, that Goldman Sachs has found that more money was raised via token sales in the past quarter than from traditional Venture capital or Angel funding. Tokens are best thought of as a stake in a future economy, where the token is essential to the functioning of a system. If the startup is successful, and adoption of its technology increases, then there is usually a concurrent increase in demand for the token that powers its ecosystem. As the Internet-of-Things keep expanding, the need for interoperability and sharing of resources become a necessity. IOTA enables companies to explore new B-2-B models by making every technological resource a potential service to be traded on an open market in real time, with no fees. This  distributed ledger technology designed to enable transactions in the Internet of Things, as an example. In the future, we will see machines transacting with one another, say an electric car paying for its own charge automatically, then there’s a good chance the IOTA token will be used as the means of exchanging that value. In such a scenario, early buyers of IOTA’s tokens would stand to benefit as the utility of the token rises and so too it’s financial value.

There are many such examples of underlying blockchain structure and application firms raising money in this way. Tezos, a new take on blockchain with automated governance, raised over $250 million from its ICO and Civic too raised funds during its successful token sale. Lisk , as the world’s first modular blockchain-based platform, Lisk allows developers to create their own apps and run them on sidechains (this is a good thing). Its apps are a accepted choice for programmers as they are built with Javascript, and with many of the key players from Ethereum on board, the ICO went down a treat. Raising $5.8 million in 4 weeks, at the time which at the time put them in second place on this list, but with their current ROI of 8370%, Lisk is the 7th most successful ICO of all time.

Kik, the successful messaging app which is already valued at over $1 billion is, at the time of writing, currently planning an ICO to raise $175 million — issuing tokens that will form the financial exchange and loyalty currency within its own messaging ecosystem.

Recently regulators across the globe  have been examining the practice to determine if some token sales may contravene financial and securities law. Notably, the Securities and Exchange Commission in the US has provided guidance to effect that ‘some’ tokens may constitute a security if they are structured in such a way as to effectively return company profits to token holders. ‘Utility tokens’ however, where the token has a function within a system, appear not to have drawn such regulatory attention. Quite how the token sale enthusiasm will playout is unclear but there’s no doubt it is reshaping the world of venture capital.