Explaining an IEO or Initial Exchange Offering
Note — this post originally appeared on SouthFound.com, my Southern U.S. startup community site.
As the popularity of crypto-currencies grew I began to notice an uptick in the number of startup founder that was interested in fundraising through an Initial Coin Offering. In fact, during the time when Bitcoin had hit $20,000 in value per coin, I was getting almost daily requests to help startups fundraise through an ICO. Since that time the ICO craze has faded quite a bit. Now I am starting to see a surge in interest around the latest crypto fundraising vehicle — the IEO or Initial Exchange Offering.
What is an Initial Exchange Offering or IEO?
Initial Exchange Offerings, or IEOs, are the sale of cryptocurrency tokens as a way to raise capital for a project and/or startup. The tokens are sold to investors who are interested in using the product or service that the company is planning to offer. Or that are strictly investing with the belief that the value of the token will increase over time.
If you know anything about ICOs then you will notice that the same definition can apply to an ICO. So, how is an IEO different?
In one unique way that really makes a difference.
How does it compare to an ICO?
An Initial Coin Offering, or ICO, can be compared to an Initial Public Offering, or IPO. In an ICO (anyone else already getting acronym fatigue?) your startup is selling a crypto-currency in exchange for funds. The buyers of that ICO are hoping that the popularity of your startup and its products or services are so popular that the value of your cryptocurrency will increase and therefore so will each coin’s value.
Can you see how similar that is to an IPO? The main difference is that you are selling a stock versus an electronic piece of currency. For more information about the ICO concept check out my past article.
With an ICO the startup can be the one administering the sale of the coin. Therefore there is no middle-man. Which is one of the challenges of an ICO. Not having a middle-man has lead to some fraudulent ICO offerings in the past.
That is where an IEO is different. In an Initial Exchange Offering the startup has elected to list their offering with an exchange, such as some of those listed in this article. That exchange is managing the sale of coins to the participants and thus takes a fee for doing so. Since there is a middle-man involved, in the form of an exchange that should be performing the necessary due diligence, there is the underlying belief that an IEO is not a scam.
Speaking of crypto-currency investing
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By the way, I heard an interview the other day with the author of Bitcoin Billionaires, Ben Mezrich. In that interview, he mentioned that there are still plenty of people who are interested in investing in crypto-currencies. They just don’t know how to get started.
If you are one of those people then I recommend starting a Coinbase account. Coinbase is one of the most well-known cryptocurrency investment platforms out there and I have personally used them to buy five different tokens as investments. All of which that I still hold.
Of course, always invest at your own discretion.
