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Comparative analysis of ICO and IPO procedures

Investors often face a difficult question-where to send their money? Some pay attention to the stock market (IPO), others – to cryptocurrencies and blockchain (ICO). Let’s compare both of these directions and try to determine what is best for the investor.

What is IPO?

IPO is a widespread tool in the financial world. However, a lot of people can recall only stories about big returns on investments, not IPO features, pros, and cons. What is this process and what are its features?

An IPO is held when a commercial entity first withdraws its shares for public sale. The abbreviation stands for Initial Public Offering. After the initial public offering, the company ceases to be private and its new status is public. As a result, anyone can become the owner of the shares.

Private companies can also have shareholders, but their number is limited. These organizations are required to meet regulatory requirements. They differ from those put forward to public companies. It usually takes several months to prepare the shares for the initial offering, sometimes the process lasts more than a year. It can result in significant costs for the business.

Why should a business conduct an IPO?

An initial public offering of shares allows a commercial organization to receive investments. The funds raised can be used for reinvestment in infrastructure or for business development.

Another advantage of IPO is to offer options to top managers, which allows hiring the best specialists. Securities can also be used in acquisitions and mergers; they act as a share of payment. An example is the acquisition of Facebook WhatsApp, as a result of which the owners of the messenger received shares of the social network the equivalent of $ 19 billion. And the mere presence of the company in the listing of such exchanges as NASDAQ and NYSE increases its image.

IPO advantages for underwriters

Investment banks often direct their own funds to IPOs and receive shares of the company before they are placed on the stock exchange. The interest of financial institutions is represented by the difference between the value of securities at which they bought and sold them. With the initial public offering of shares by a promising organization, the competition of banks for the opportunity to act as an underwriter on the IPO can be very large.

To attract attention to the placement of shares, underwriters often organize an advertising campaign. It provides information about the financial performance of the business to prospective investors, even if they are in another part of the world. Often the advertising campaign is carried out for large investors. The process of acquiring securities before the official start of trading was called allocation.

As you can see, the IPO can be beneficial for each party to the transaction: the company, underwriters, investors and directly stock exchanges. The process has a lot in common with ICO, so it is not always easy to choose the best option. Do your due diligence before investing to increase your chances of getting big returns on investment.

What is more profitable: ICO or IPO

If we talk about the possibilities of capital multiplication, the ICO is the undisputed leader. So, tokens Spectrecoin for just over a year managed to bring its owners more than 325 thousand percent profit! After the ICO, holders of Ethereum coins were able to fix 320 thousand percent of profits, and NEO – 397 thousand percent. In the latter case, however, they had to wait more than two years.

It is easy to see that the profit from participating in the ICO can vary by hundreds of thousands of percent. This applies not only to the well-known cryptocurrency, but also to those who are in the shadows – Populous, Neblio, and Ark. On average, during the year the initial placement of tokens allows you to make a profit of more than 1000%.

Securities in the stock market can not boast of such returns. They even 20-30% per annum is good profitability, and 70% – a real success. Full return on investment for 5 years is considered to be the norm.

Comparison of ICO and IPO by many indicators

  • Real product. ICO investors often do not know where their money will be spent. Usually, companies give vague promises and bright words. Even the presence of a blank product is a very rare case. In the stock market, companies already have finished products. The investor can assess its features and prospects.
  • Provided guarantees. If the cryptocurrency market does not recognize the token, then after its initial placement, the value of the asset will begin to fall sharply. It is almost impossible to sell it on the bear market immediately after the ICO launch. In addition, the legislation does not protect against such situations. Therefore, most likely, it would not be possible to get the funds back. If the company goes bankrupt, its shareholders have the right to receive part of the property. They can even defend their interests in court. By this indicator, the IPO is more profitable.
  • Swindlers. The sale of tokens opens up wide opportunities for various scammers. In turn, stock markets have existed for a long time, their activities are regulated by law, many hidden problems and risks have been sorted out. When conducting an IPO, the company must be registered, issue a license and conduct fully legal activities. There are no such requirements for ICO.

It is impossible to say for sure what is better for the investor: ICO or IPO. Those who are inclined to risk for the sake of superprofits, choose investments in cryptocurrencies. Investors who value reliability and confidence prefer stocks. You can choose the “Golden mean”, and send part of the assets in coins, part – in securities. Why not try yourself in this direction? You can start investing in cryptocurrency with just a few dollars!

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