Startup companies in their initial stage need constant inflow of funds, the waters of life for them to flower. However, most startups struggle to raise fund, collapsing before entering a safe orbit. Among startups in the United States, home of the Silicon Valley, less than 1% raises much-needed fund from venture capitalists. This demonstrates how difficult it is for startups to raise seedmoney.
Against this backdrop, a new method of raising fund has appeared that does not require much legwork. That is initial coin offerings, ICOs in short, and is getting attention with virtual currencies. Recently the Korean government strengthened regulations on digital currencies and subsequently cryptocurrency speculation has been discouraged. Nevertheless, the vast amount of investment attracted to ICOs still lures many startup companies.
An initial coin offering, ICO, is a mean of funding, where a company issues and sells a virtual currency to investors. An ICO is not much different from crowdfunding, a mean of raising money from a large number of people via the Internet, but there exist differences between traditional crowdfunding and ICOs and one major difference is the investment amount. Another difference is speed; ICOs take short time until the investment goal is reached. One ICO case is luring enough to get much attention; Brave, the upstart software company, generated $35 million in 30 seconds.
Source : Crowdsourcing for radical innovation projects (Erik Vollstadt)
Having said, investors should remember that ICOs are based on a blockchain environment and on virtual currencies. In contrast to initial public offerings (IPOs), where investors pay in fiat currency and gain shares in the ownership of a company, in an ICO, the investors pay in key cryptocurrencies such as bitcoin or ethereum and gains virtual coins of the company.
Although regulations on ICOs may differ from country to country, one thing to note is that ICOs offer no legal protections for investors. For instance, most ICOs present a whitepaper, a business plan report, describing the investment to be a “Donation.” Most recently, financial regulatory authorities in major countries like the US are trying to minimize the risk on ICO investors by applying the Qualified Institutional Buyer system.
Korean virtual currency = Last September, the Korean government announced that it will ban ICOs altogether, regardless of technical terminology or form, like China does. Subsequently, many ICOs have been canceled in Korea. Most recently, however, ICOs centered around Korean people are increasing.
Aston, Hycon, Mediblock, STARCRO, UNNIO, Boscoin, ICON, hdac
The major force behind the above cryptocurrencies is Koreans. In order to conduct ICOs, they set up a corporation in countries like Swiss with a friendly jurisdiction for ICOs. Together with the ICO ban, the real-name trading system for cryptocurrencies are driving huge funds out to foreign countries. Experts have expressed concerns that the all-out ban on ICOs may slow down the fourth industrial revolution in Korea.
Do you need a blockchain?= As written earlier, a Korean may conduct an ICO by establishing a corporation in a foreign country. However, they should take enough to review thoroughly whether their business needs blockchain or not. For instance, many companies apply blockchain to raise fund, but such application of technology may fall behind.
During the open debate on cryptocurrency regulation and improvement, the Financial Services Commission of Korea conceded that it is impossible to separate blockchain technology from cryptocurrencies. Nevertheless, the regulatory authorities still maintain negative position on allowing ICOs in Korea. Kim Hyeongjung, professor at Korea University’s Graduate School of Information Security, said “the government should change its stance on ICOs from ban to allowance for regulatory consistency.”
In contrast to strong regulations on investors, the Korean market has always been at the forefront in accepting new IT and advanced technologies. Likewise, the market players have deep understanding on cryptocurrencies. If the ICO ban is to be lifted in Korea, many startup companies in Korea may have an opportunity to grow in the world market.
