Whether you’re an early stage startup looking for your first seed funding, or a mid to late stage company looking to scale up, raising money has always been an arduous and complex process.
Luckily, the fintech and blockchain revolution have opened up alternative ways of fundraising for early and growth-stage businesses. Here are 3 new fundraising models (new-ish) for getting capital for a business:
Crowdfunding is a phenomenon that has been around for a while, and crowdfunding startups like Kickstarter have allowed many early-stage companies to raise their first rounds directly from the public.
However, crowdfunding has gone to the next level with the introduction of ICOs (Initial Coin Offering). An ICO refers to when a blockchain company raises money from the public by offering its own “coins” or cryptocurrency in exchange for fiat currency or established cryptocurrencies like Bitcoin and Ethereum.
An ICO is a largely decentralized, more and more regulated way of raising money from retail investors (although ICOs are regulated by some countries). ICOs, as far as being avenues for raising capital, have added benefits in marketing, customer acquisition, no dilution, and the support of hardcore technology enthusiasts and advocates.
A more recent innovation when it comes to crowdfunding is the ETO (Equity Token Offering). An ETO is a blockchain-based, hybrid investment model that allows any company, blockchain, or otherwise, to issue equity tokens on a blockchain. ETOs combine the advantages of VC funding, IPOs, and ICOs all into one. German investment platform NeuFund is the pioneer of ETOs and is creating a new way of blockchain-based crowdfunding that is transparent and complies with German and EU regulations.
Just like traditional stock markets, the blockchain-based financial system also has a market for the secondary sale of tokens. After an ICO is completed and tokens are issued to the key addresses, the tokens can be bought by buyers who missed out on the ICO via exchanges.
If the demand for the project tokens exceeds supply, the price of the tokens will rise, thus enabling the project to raise further capital. Of course, crypto exchange markets are subject to a high degree of speculation and there is no guarantee of a positive ROI (Return On Investment). Moreover, unlike traditional stock exchanges, crypto exchanges are not obligated to disclose financial reports or ownership changes, which makes investing through them a riskier proposition.
Internal Community Funding
Most blockchain projects have an existing community of developers and investors who are advocates of the project and may have participated in the ICO. Many companies turn to their internal community to raise smaller follow-on rounds of funding.
Internal community funding can be accomplished by redistributing staking rewards, or by offering participants a right to redistributable surpluses. Navcoin, which uses a Proof-of-Stake algorithm, uses staking rewards to fund internal projects. Similarly, Rchain incentivizes community participants to make repeat purchases, thereby getting them to contribute to project development.
It’s definitely an exciting time for young, creative startups with all these new avenues for raising money. Here’s an infographic that has detailed insights on the latest blockchain-based crowdfunding innovation, NeuFund – creators of the ETO:
The above infographic was created by Cyberius.