With the resounding success of the initial coin offering (ICO) model thousands of small businesses using blockchain have funded ongoing operations. Regulators have recognized the power behind the idea, which is to collectively mobilize retail investors' unused cash. Institutional resistance is diminishing, and so established corporations are now jumping on the ICO bandwagon to raise money for their own blockchain solutions, which may further legitimize this trend.
Blockchain turned the notion of crowdfunding on its head, but the revolution seemingly happened in slow motion. From bitcoin, blockchain technology ascended into prominence thanks to solutions like Ethereum, which help disrupt transactional business processes with a new breed of smart contracts. These were the impetus for a new trend in crowdfunding called an ICO—or initial coin offering—which helps new startups to source liquidity.
The concept of crowdfunding has come a long way. Entrepreneurs with a unique business idea used to build capital by approaching their personal network for funding—family members, other relatives, and friends—in a concept also referred to as “angel” investing. Crowdfunding, by contrast, is now synonymous with websites like Kickstarter and IndieGogo. These platforms provide room for creative types to display their business plans, product imagery, and organize online credit card and bank payments from interested contributors.
1. Overstock.com: The Dangers of Mixing ICO and IPO
Overstock Chief Executive Officer Patrick Byrne has made some successful decisions during his leadership at the eCommerce retailer. One of the most notable was the acceptance of bitcoin as a payment method back in 2014. The choice was a prescient one for Byrne, who has earned billions for his company due to bitcoin’s increasing value while overseeing a stock boom in parallel. His efforts to turn Overstock from a retail company into a blockchain powerhouse are continuing with the upcoming ICO, slated to raise over $250 million to fund his new platform and cryptocurrency tZERO.
Byrne raised around $50 million during the pre-sale and recently extended the public sale amidst an SEC investigation into tZERO, shaking investor confidence. This may have contributed to the concurrent decline in NYSE-listed OSTK, teaching onlookers that mixing blockchain and the equity market can be both positive and negative.
2. Ask.fm: Creating Tangible Value From Content
Seminal question-and-answer platform Ask.fm is an exceedingly popular internet destination which boasts over 215 million users. Visitors can ask questions on the platform and read answers from people around the world—a simple idea but one with an underlying value that blockchain can really bring out. The ability to follow users and do thorough platform searches means that those with expertise can quickly find questions that they’re qualified to answer. Users can even ask questions directly to the most knowledgeable posters.
Whispers are going around about the company considering an upgrade, and signs are starting to point to a looming ICO in the near future. The company’s mysterious ‘AskFM 2.0’ has been showing up on its website with little additional information. However, there are rumors that it could involve some sort of token-based incentive system. In theory, providing a cryptocurrency could lead to better quality of content and draw even more users to the platform. Even better, it would suggest that Ask.FM is happy to let users decide the best content providers by building a more equitable ecosystem.
3. Telegram: Big Presence, Big ICO
In an age where privacy is scarce, Telegram came out with its mobile chat application. The app allows users to easily talk with one another from anywhere in the world, and none of their data or conversations are unencrypted, stored, or shared with third parties (or even governments). This utility has contributed to Telegram’s immense popularity since it was introduced in 2013. Though they’ve taken flak for their refusal to share data with governments, Telegram is now doubling down on its popularity by using blockchain to improve security and introduce safe payment functionality.
The company plans to launch a chat platform with cryptocurrency payments and intends to call it the Telegram Open Network. TON is also the name of the token generated during their upcoming ICO, which may reportedly raise as much a $500 million. It could end up being the biggest ICO of all time, which is possible due largely to Telegram’s momentum.
4. Kodak: ICO Isn’t a Magic Bullet
Large companies who want to fund an entry into the blockchain space can capitalize on their market presence with an ICO. After years of leading, and then falling behind the camera and photography industry curve, Kodak is looking to accomplish this very feat with the launch of KodakCoin. The token will be used to drive a platform that tracks and monetizes image ownership and usage rights on the internet—a useful idea. Kodak recently filed with the SEC and began a licensing arrangement with partner WENN Digital.
Though the concept of KodakCoin is sound, there has been some scrutiny surrounding the decision to ICO, given Kodak’s struggling stock price. Down to around $5 a share from almost $40 just five years ago, many see the launch of KodakCoin as a money grab instead of an attempt to supply the market with the necessary technology. Companies with little relevancy to blockchain must be very careful to avoid PR hiccups resulting from a poorly considered project. Such sentiment detracts from the efficacy of any future ICO.
5. Sears: Don’t Make Idle Threats
An ICO is currently viewed as a “gray area” fundraising model, and even the largest companies are trying to figure out how to make their tokens compliant with the SEC’s myriad definitions and standards. Despite their uncertain future, for the moment ICOs are helping raise billions for small and large companies alike, but CEOs and business owners should be wary of fueling the hype. This is a mistake that Sears may be making when it tells the market that one of its potential strategies for digging itself out of financial degradation is to launch an ICO.
Sears CEO Eddie Lampert has no business running an ICO, and many argue the same about his position at the helm of his company, which has not-so-gracefully suffered the decline of retail. The best way to launch an ICO isn’t to “threaten”, but rather to release a sustainable business plan, and companies which don’t launch their ICO with its long-term health in mind will learn this lesson the hard way.
Initial Coin Offerings are still an infant concept, and larger companies considering the blockchain in their own solutions should recognize that they need to adapt to new and informal standards or risk introducing a dud. More so, they risk the health of the trend itself, because with a successful ICO they hold the responsibility of ushering blockchain into the traditional market. Companies must safeguard this opportunity and show that they’re dedicated to the proliferation of better blockchain services, and not just exploiting a lucrative crowdfunding event.