Can ICOs Replace IPOs? Are They?
Initial Coin Offerings cannot, within the frameworks of the modern financial industry and corporate America, broadly replace Initial Public Offerings. While both exist in-part in order to raise capital for a business enterprise, these processes serve different underlying functions.
Initial Coin Offerings serve primarily as a fundraising tool. Certainly, there are offerings rooted in currency that serves a specific, productive purpose unique to a company’s vision. But most often, this process functions first and foremost as a means to finance the launch of a company, usually within the technology industry.
Initial Public Offerings occur when corporations go public. Practically speaking, when corporations begin as private enterprises, their shares are generally dispersed between any given business’s founders, investors, employees and/or advisors. Although “outsiders” to the business may be granted shares, these distributions and any subsequent trades must be conducted privately. When a corporation goes public, all distributions and trading arrangements are henceforth made publicly.
In short, ICOs cannot replace IPOs in general, simply because the act of a private corporation going public cannot be supplanted by launching an ICO. However, there is evidence to suggest that the capital-raising feature of both processes is being impacted by the early successes of numerous ICO launches. It is possible that ICOs will, in time, begin to replace the idea that in order to raise much-needed business capital that a corporation must go public. Some corporations may delay the process of IPOs in favor of launching an ICO when the company needs an influx of cash but is not yet ready and/or willing to go public.
As ICOs are relatively new to the investment market, they are not yet broadly respected. But as they continue to gain legitimate traction, they will become more frequently utilized. And it will be at that point that ICOs will begin to replace, in-part, the role that IPOs serve in terms of fundraising alone.
Investment and Startup Launch Assistance Is Available
Investing in startups and launching new startups are both complex processes. Similarly, the process of transitioning a corporation from a private entity to a public one is nuanced, time-consuming and consequential. If you or your company could benefit from guidance related to any of these legal realities, please consider connecting with an attorney providing legal fundraising services at LawTrades.