Previously for startups looking to raise capital, terms like Seed Funding, Series A, B, C, Seed Funding were common. Today, there is a disrupter in the global finance industry that is powered by blockchain. Therefore, startups have another option of raising funds through what is known as an Initial Coin Offering (ICO). Last year, blockchain startups raised over $1B through traditional Venture Capital, and a more than $5.6B through ICO capital.
Traditional venture capital is highly regulated. Companies, products and services are vetted and go through a procedure, industry contacts, advisors and networks. For startups raising funds, it usually means giving investor a big portion of the business. For investors, venture capital model is one of the safest ways to invest in the risky sectors.
On the other hand, Initial Coin Offering provides the best way to raise capital fast from anywhere around the world. The model allows company founders to retain more control of the business. However, ICO remains highly unregulated and there are many cases of fraud where some companies are only interested in raising money. Although ICO has the potential to change how startups raise capital, it has its own drawbacks.
Since both venture capitals finding and ICO have shortcomings, the ideal funding mechanism would be a marriage between the two, increased due diligence, safer investment, more control for founders and higher returns.