ICOs are launched by blockchain based startups to raise funds to develop and deploy their project and to meet their operations costs for a few initial years. Since 2013, we saw the launch of several ICOs, most of them have succeeded and some have failed. Anyway, ICOs have helped a lot of entrepreneurs to raise funds for developing their projects in a hassle-free process as compared to VC funding.
This question must have gone through the minds of every entrepreneur who already has a running project but still needs more funding to expand their business. The answer to that question is “Reverse ICO”. Companies can launch an ICO with the label of ‘reverse ICO’ to decentralize themselves to remain competitive. Here, Launching a reverse ICO is far riskier than launching a normal ICO, as reverse ICO is directly affecting the running business. The company is already having a centralized business model but it decides to tokenize the business model so that the governance becomes decentralized. A decentralized business model with crypto tokens is a great strategy to align the interests between the founders, customers and other parties involved in the ecosystem. This method has proven to be effective for blockchain startups and even has a bigger scope for already operational companies.
One of the main advantages of reverse ICO is that the company behind it already has a working business model. More ICO investors will be interested in such a project compared to other ICOs which are yet to develop a product, reliable business model and market acquisition plans. The company going for reverse ICO already has valuable assets to back their tokens. The assets can be user base, subscriptions, revenue or anything. Assets backed tokens are more likely to succeed in the crypto market, as investors love tokens that are backed by solid assets.
Popular messaging app Kik who has more than 300 million user base raised almost $100 million using reverse ICO which was held last year. The competitors of Kik include Whatsapp and Facebook who put a hard time for it to grow. By decentralizing, they incentivize its users for their interaction and for the value they add to the system. This allows the developers to make all sorts of business models around the Kin token. The decentralized business model encourages the user to contribute more value to the system.
After knowing all the benefits of ICO, one would definitely choose to launch an ICO to raise funds over traditional VC funding. But, there is a limitation to launch a reverse ICO. The first aspect to think before launching an ICO is to analyze whether your business model can be decentralized. Not every business models can be decentralized. For example, if your business is in selling products through an online platform, reverse ICO is not a good option to raise funds to expand the business. When you offer tokens to ICO investors, you have to offer a token value along with it. In this case, the tokens can be used to buy products at a discounted rate from your platform. This is not a sustainable model without a well-structured business plan to accommodate the tokens in the business model, because the project is more likely to fail. On the other hand, consider a cloud storage service, in such a business, decentralization is easily implementable by incentivizing the customers to share their unused hard drive space. The expansion of business with decentralization business model is more feasible as more customers opt to share their unused resources.
The process of launching a reverse ICO is almost similar to launching an ICO. You can read more on how to launch an ICO here.
ICOs have already caught the attention of the general public, we can see more of reverse ICOs and STOs in the near future as it benefits the companies to raise more funds which can be used to revamp and expand their business. Decentralizing the infrastructure with a crypto token puts the business in a better position to be part of the new token economy.
