The ICO market has been full of gems and scams alike, but I think everyone can agree, that this form of financing has (r)evolutionized founding.
Due to the inherent nature of the market, this form of funding has primarily (although not exclusively) been used by (fin)tech and blockchain organizations, seeking rather early stage investments. Of course, Venture Capital funding is only a drop in the bucket of the world-wide flow of capital.
I am especially curious how ICOs can be applied to financing ‘real-life’, non-digital projects, such as real estate, infrastructure, powerplants, etc., starting at roughly Mio. USD 50. I am talking about a project like ZrCoin, where the funds acquired in the ICO were used to finance a production facility of a chemical component. The ICO had many critics (myself included), but I think that there is a lot of potential when a clearer company and regulatory structure is applied.
Those types of investment yield a rather constant and calculatable flow of returns, and are favored by a wide range of institutional investors, but unfortunately, they are very inaccessible to a small cap investor. Naturally, this limits the market quite substantially, and is rather unfair for the every-day guy who doesn’t have the connections to take part in the investment. On the other hand, such projects are very complex and require thorough due diligence on the part of the investor, which is manageable for institutions, but almost impossible for a single private investor on the other side of the world.
Furthermore, there are still high levels of uncertainty on the regulation part, which is very unfavorable due to the long term of the investment. There is no doubt, that the coins/tokens would be considered a type of security, and I don´t think that one should try to wiggle around the law. Of course, the necessary filings and procedures must be fulfilled.
As on how the token/coin should be structured, I think that this issue should be addressed individually for each project and I´m not sure what the best practice is. My thoughts on a portfolio of energy power plants are as followed: A token might represent 1 KWh of energy produced by a power plant, and new tokens are issued to the holders as soon as further power plants are introduced to the portfolio. An alternative would be a buy back strategy that is financed with the profits of the portfolio (similar to ZrCoin´s approach).
I opened this threat to start a discussion on how to structure an ICO for a ‘real-life’ project. What do you think about it? Is it possible to use an ICO for this type of funding? Do you see a better way to do the founding, e.g. a crowd lending platform? How should the Token be structured and should it be considered a security? What about the pay back/appreciation mechanism?
Thanks for talking your time to read this post, and I hope we can engage in a fruitful discussion.
Max Hillebrand