Startups Can Raise Capital Much Faster Thanks To This New Funding Model
Traditionally a nerve-racking experience, fundraising today is a relatively simplified and streamlined affair today. Advancements in technology and the emergence of new methodologies have played a major role in alleviating this tedious process.
One such technology pioneering change in this sector is blockchains. By offering users a decentralized and immutable platform, it is possible to execute transactions without any cross-border restrictions. This advantages helped in the development of multiple fundraising options such as the Initial Coin Offering (ICO).
The ICO model allowed businesses to circumvent regulations and other restrictions to directly interact with investors. While this meant that funds could be raised faster, it also gave scammers the leeway to cheat investors. As more and more cases of fraudulent projects entered the fray, many legitimate entrepreneurs found it difficult to raise capital.
This called for a change in approach and the introduction of a better crowdfunding model. One that helps eliminate fraud and optimizes the entire process. This market aspiration was realized through the Initial Exchange Offering model. Here, established cryptocurrency exchanges would function as a trusted intermediary. Thus, the exchange is responsible for verifying the veracity of submitted projects, organize marketing, and even oversee tokenization processes.
This was an absolute win for both entrepreneurs and investors. While the former could outsource the entire burden of managing the blockchain process, the latter enjoyed easy access to projects and trade purchased tokens. But, how well has the IEO model fared?
The number game is looking strong for IEOs. According to Inwara, 2019 has seen an unprecedented number of projects being listed and launched under the IEO banner. What’s more, is that this model has raised close to $1.4 billion in funding since the start of the year.
Moreover, this model is helping entrepreneurs raise capital in record time. It was reported that on an average, most IEO projects require less than a week to hit their hard cap. A testimonial to this fact are the fundraisers of VeriBlock and Fetch.AI that reached their funding goals in 10 and 22 seconds respectively.
Initial Exchange Offering is slowly gaining prominence as more and more entrepreneurs as well as investors have found this model advantageous. This has inspired several cryptocurrency exchanges to establish exclusive services that cater to this market. In fact, many platforms have established separate platforms called “Launchpads” to facilitate this.
These launchpads function as secondary exchanges and enable better liquidity options for the users. Currently, some of the most popular platforms are Binance, Bitfinex, LATOKEN, and KuCoin. However, this list is steadily growing and it goes on to show the effectiveness of this model.
The report by Inwara also pointed out that most of the movement in the IEO marketplace is seen in the Asian region. Countries like China, Singapore, and South Korea have outpaced stalwart nations like the US and UK in this aspect.
While the reference to Singapore was not a surprise since the country has positive cryptocurrency legislation in place, the mention of China and South Korea left experts bewildered. This is because the two nations have strict policies in place that discourage blockchain-based crowdfunding. However, it is believed that factors such as scrutiny, compliance checks, and transparency may have helped regulators in these countries to give IEO projects a green light.
The influence of the Initial Exchange Offering model in the past few months cannot be ignored. It is dramatically changing the way we approach funding for business purposes. It has already surpassed the ICO in popularity and as more platforms begin offering services in this domain, it will only help in making this financial model mainstream.