If you are reading this, there is a good chance that you have an early-stage company and think about rising money. But what will be better for your company? One option is the old and familiar venture capital (VP), raising money from a group of venture capitalists, who will risk their money in exchange for company equity.
Another option - the Initial Coin Offering (ICO), raising money worldwide from anyone having Internet an enough money to buy a token. Basically, ICO is an invention allowing startups to fund themselves without any equity commitment.
It might look like ICO is a game changer. Why should one share a percent of the company if today it’s possible to rise money without it? But VC still has a few aces in its sleeve.
VC vs ICO: Goals
There are valuable things you can get from VC additional to the funding: consulting, business guidelines, scalability, connection to the industry influencers, proof of concept. If you are looking for any of that – go for VC.
If you are looking for a quick way to rise money with as much people involved as possible, if a strong community is more valuable than influential individuals - go for ICO.
VC vs ICO: Audience
The easiest way to explain the difference is to compare ICO to business to consumer sales and VC to business to business sales.
VC investors are experienced businessmen, having a lot to propose, having a lot to demand. If you have a superb idea but no demo, no white papers, no smooth pitch, no detailed roadmap - forget about VC, they will not buy it. You need to be much better prepared than in ICO case. On other hand, VC investors are much more reliable, they are willing to support your project for a long time and are not looking for a quick return on their investment.
ICO investors are everybody. From everywhere. You can get lots of money from people living on another continent. Having a working product is not necessary. Having a track record is not necessary. Nothing is. If your idea will have enough buzz, you will get your funds.
An explainer video, Youtube channel, PPC ad, podcast - whatever you choose to bring attention and spread the word.
But please note, that the nature of ICO is quick buy-sell process. So, most of the investors will look to sell the tokens for a quick profit and will drop your project if its struggling some issues without sentiments.
VC vs ICO: Requirements
VC - You need both strong staff and stuff, working product, vision, well-prepared pitch, documentation, etc. Also, once you have a deal, you need to share a part of your company (usually at least 20 percent)
ICO - there are no formal requirements for holding an ICO. You decide what and how your token holders will get in exchange for their money.
VC vs ICO: Geography and Accessibility
VC - VC investors are solid and conservative. Usually they strongly prefer companies from the same country. They want you to come to numerous meetings and sign numerous papers. While this may not be an issue for US citizens, for third world startups it can be a serious limitation.
ICO - no limits, you get it all from the Arctic to Antarctica.
VC vs ICO: Press and Public Perception
In terms of public perception, VC has a strong advantage. Rising money from VC gives you a strong trust credit and PR, since VC’s are much more experienced and check the project thoroughly before investing. Also, if after some time you’ll figure out that you brilliant idea is not that brilliant - they will share your fault. Since they knew exactly what they put the money in. So, no hard feelings, sometimes the same investors will even invest in your next project.
In case of ICO - you’re going public. And if you have troubles building the product you promised - be prepared to be called scammer on every platform possible and most likely blacklisted everywhere, so there will be almost no chance for a come back.
Benefits of VC
- Investors Loyalty
- Business guidelines and knowledge support
- Building valuable connections
- PR credit
Benefits of ICO
- Freedom, no equity required
- No working product required
- No geographic limitations
- Rapidity – no bureaucracy