Startup Acceleration: ICO Investments VS. Traditional Financing
Accelerators use various tools to attract funds for startup development. One traditionally attracts an attention of corporations and angel investors while another simply uses the ICO campaign. Let us consider both methods in further detail.
Most often, accelerators working with a traditional funding model obtain means for startup development in two ways:
- Government or Corporate Sponsorship. States and the world's largest companies establish a special budget for acceleration campaigns. This approach allows them to identify the most promising projects. In most cases, such big investors sponsor start-ups in order to integrate them into their entities and to take them over afterwards.
- Private Investors Fundraising. It is usually provided by entrepreneurs possessing substantial balances on their accounts. They often seek the most attracting companies and support them in the early stages. Once a young company has developed and shown signs of success, private investors profitably sell off their stocks in these projects.
The model is less common when a startup accelerator already has its own investment fund and operates within it.
From the investor's point of view, a selection of startups to be invested must be taken very seriously. Investment will be rewarded only if a startup acceleration is a success and it exercises its direct activities. Therefore, investors must be able to predict and estimate potential risks and benefits.
For accelerators, the traditional way of money raising is a rather time-consuming process. Approximately 75% of its time, the team should spend on finding investors. There is so little time left for development programming. Therefore, the most advanced accelerators establish special departments: one team attracts funds, while another develop a promotion campaign. Nevertheless, this is possible if only there is a sufficient number of qualified staff.
The main advantage of this approach is that it is regulated by law. In the event of conflict, all parties can defend their rights in court, since each member of acceleration signs a particular agreement.
Moreover, the fundamental weakness — business acceleration requires lengthy preparation time.
When using this method to obtain funds, accelerators no longer need to "run around" investors. Investors are often looking for the most promising ICO by themselves. In addition, any common citizen who does not have millions of dollars can easily become an investor. As a result, you can get a lot more from ICO than using the traditional method.
Instead of searching for investors, the accelerator needs to take care of other things. Foremost, you need to advertise the ICO on those Internet portals where a so-called cryptocurrency community is often gathering. Here you need to present the project and describe its main aims and ideas.
Secondly, it is necessary to prepare a commercial offer. This is a suggestion for key investors to participate in the project. The offer should specify the project's deadlines as well as a status of main means of payment — the Token.
Third, these Tokens need to be "mined". The mining of Tokens is a process that requires a creation of separate blockchain (most often from the open code of already existing blockchain) with further original algorithm. Once there are enough Tokens, you can proceed to ICO.
Benefits of ICO:
- Cost Saving. The vast sums attracted in traditional way are transferred through banks in 100% of cases. Bank charges a commission. This does not happen when it comes to ICO. All transactions are carried out in cryptocurrency, without any agencies or commissions.
- Reduction of time. Due to the fact that accelerator no longer needs to seek sponsorship from the state or private investors, its team saves a great deal of time
- Efficiency. The method of ICO provides a much larger range of sponsors than traditional investment. Sometimes, Tokens cost only 1 ETH (about $200) or even cheaper. Therefore, accelerator can collect very impressive sums for startup, estimated at millions of dollars.
The main disadvantage of ICO is the lack of legislative regulation. Investors fear that a startup can "blast off" together with their money. In this case, funders will not likely be able to recover their money, since there is still no clear control over ICO within any jurisdiction.