How To Raise Funds Without Giving Away Equity
By: Akshay Gokalgandhi
Tags: Equity Crowdfunding, Fundraising, ICO, Blockchain, Blockchain Technology

“How to Raise Money without giving away Equity” is the question every company wants an answer to today.

Every company dreads the day when it has to raise funds. Every time a company raises funds the owners have to part with a portion of their equity against the money they raise. The funds always come in with a set of conditions and terms. Most of which involve reducing the founders stake or sometimes putting him/her in tough situations.

The most common ways funds are raised is via VC funding. Billions of Dollars every year are invested in companies via VC funding. These capitalists search for the best investments and the best team whom they trust can successfully run a company conditional their business model is right.

When this trust is weak and the VC’s aren’t confident they will lure the founders towards Venture Debt. A kind of loan that the founders get against a portion of equity with conditions to repay it on time.

After a company has grown this stage they can definitely raise massive amounts through an IPO (Initial Public Offering) that makes the company public. The common man can invest in the company buy purchasing shares from the exchanges where the company gets listed.

So how to raise money without giving away equity?. These days there is a new medium. The developers of the world have devised a new strategy to raise funds. Using the blockchain ecosystem a token based system has evolved that help companies crowdsource funds through an ICO (Initial Coin Offering).

What is an ICO?

Startups that do Initial Coin Offering basically raise funds via a crowdsale by accepting Cryptocurrencies in exchange of Tokens. These tokens are like shares, but they aren’t shares. These tokens get listed on exchanges and individuals purchase them with a possibility of their prices going up when they get listed on exchanges around the world.

The last year saw startups raise close to $5.6Billion through ICOs. This is the reason for all the hype probably!

How Do ICO’s work?

All ICOs start with a basic idea. A startup come up with an idea for a blockchain related project and proposes it to the blockchain community through different social media channels to see what kind of traction it can generate on the idea.

If the startup thinks they have the communities acceptance they will draft a basic white paper. This white paper will consist of all intricate details of the project. The fund allocation, the need for the token and the team that will work on the project with their credentials.

In the following process the token economics is finalized , where the details on the number of tokens, the price of the tokens and other similar economic details are finalized.

In the next step the ICO team works towards creating the required buzz for the tokens with the right marketing campaigns within the community. These campaigns last for a limited period of time as every ICO has a fixed time frame and a detailed process to sell these tokens.

Once the investors receive these tokens, they purchased through the ICO, these tokens are made to go live on exchanges for trading. This is where the initial investors usually make a decent return on their investments.

This is exactly how an ICO functions and “How to raise money without giving up your Equity”. Obviously summarized, this article isn’t a detail rendition of the process but a lot of work goes into doing an actual ICO.

Indian ICO’s.

In the last year a couple of Indian companies have also executed successful ICOs and raised some money. But globally a lot of them have successfully raised capital, much more than what they asked for.

Some of them who have launched or are looking to launch their own ICO are

Drivezy

Belfrics

WandX

SpringRole

Machaao

EasterEgg

Cashaa

How to start your ICO?

To start your ICO the most important thing is to build a dedicated and a strong team. Post which below are the basics of an ICO

Develop a Token Plan

Design a Token Sale and Infrastructure Plan

Create a lifecycle

Announcement

Offer

Marketing and PR

Start Sale

Content Plan and White Paper

Public Guides

Token Sale Plan

Community Building

Bounty and Referral Plan

Well, these are the basic steps for your initial understanding. To know details, write to me at akshay@blockinventors.com

How to Avoid ICO Scams as an investor?

With major success stories also comes a risk. Where there have been multiple successful ICO’s there have been a few ICO’s who ran away with the investors money. There are certain tips on how to avoid them:

Check the team behind the ICO

Usually when the ICO doesn’t have a team who can pull it off, the ICO is guaranteed to fail. Like how the VCs need a basic background of the team it is advised ICO investors also follow this process.

Read the White Paper

Every ICO releases a white paper today. Go through the entire white paper for all the important details. Do not fall for fancy words and jargons. Make sure you understand the clear reson for the token sale and utility of these tokens in the future. Avoid ICOs who fail to answer these questions.

Relate with the community

All active projects have communities on Telegram, Reddit and Slack. Speak to people on these communities and notice how active the community is. The active the better, since that shows the commitment of the developers and the people towards the project.