What are the key differences between IPO & ICO and why are these terms related in some contexts? What is the correlation between them?
Firstly, let us define the terms to have an idea of their purpose from the investment point of view. IPO (Initial Public Offering) is the offer to the public to invest in an already operating company which needs to enhance its capital for a special project or general business enhancement. In other words, when a company reaches Stock Exchange first time to generate capital, then it is called IPO.
On the other hand, ICO is the fund raising mechanism of the projects & companies being started in the decentralized ledger or the BlockChain. In other words, the companies doing ICO are actually raising capital first time for their projects and the general public is invited to invest in the company after following some rigorous but quick KYC (Know your Customer) requirements.
The main difference between the two is that IPO does not mean that the company has taken a fresh start so will not generally give the public an offer to control the company rather it will be an offer to hold a minority interest in the company. On the other side, ICO is the fund raising of a fresh company and an offer to the general public to invest in the company for the first time so may offer public to control to the company.
For considering IPO, companies have to follow rigid regulatory requirements and have to issue a prospectus, and there is mostly delay in plans due to the rigid structure of its requirements lists. On the other hand, ICO are less monitored and regulated, but it does not mean that they do not tell about their activities before hand. It鈥檚 customary in the BlockChain environment that companies issue a whitepaper, i.e. something like the prospectus and ICOs are fast in operation but do not lack transparency.
IPO are always meant to be for stock purposes in the stock market while the purposes of coin issue in ICO are vaster in scope. They may be giving a right to the revenue or generally a right to the utility of the project rather than direct ownership, but it again depends upon the type of the coins issue during ICO.
The reality of IPO is that they are generally always taken up by the institutional investors and only give a minority of holding to the general public and therefore the way the large stakeholders direct, the company decisions are molded accordingly while the minority shareholders have always remained to be a concern in the IPO offerings. On the other side of the picture, ICO are generally acquired by the public who have met their KYC requirements and are therefore more dilute in power and the minority shareholding issue is less abundant here.
Although ICO are also blamed for being less regulated, the authorities have taken up the matter, and the equity coins issued during ICO are now being monitored but the time span of ICO may never reach IPO.
Official links for more details,
Website Link : https://ethlimited.org
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Whitepaper Link : https://ethlimited.org/whitepaper.pdf
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My Bitcointalk Profile Link : https://bitcointalk.org/index.php?action=profile;u=1434888
