Private sale ICOs, also known as private placement ICOs, can be an attractive option for blockchain startups. This lesser-known fundraising method is beginning to appeal to more and more startup companies, especially since regulators are cracking down on public crypto offerings. But first, what exactly is an ICO private sale, and how are they different from a traditional public ICO?
The Difference Between Public and Private Sale ICOs
The key difference between a public ICO and a private ICO is the audience of the offering. A private ICO offering is limited to a specific number of directly solicited investors. In contrast to a public ICO, where investors of all backgrounds are encouraged to participate–usually through an online or email signup–ICO private funding takes place with a few specialized investors.
Who exactly are the targets of ICO private sales? In the traditional investment world, these specialized investors are called accredited investors. Per federal regulations, an accredited investor is someone with a net worth of over $1 million, or one who makes over $200,000 for multiple years in a row. Institutional investors–hedge funds, mutual funds, and finance firms–also qualify as accredited investors. By targeting accredited investors, private placement offerings are required to jump through as many hoops as typical public offerings. Because the investors are assumed to be sophisticated, regulatory bodies are less worried about investor manipulation taking place.
ICO Private Sales vs. Pre Sales
What’s more, private placements are differentiated between private sale ICOs and private pre-sale ICOs. Private pre-sales comprise the main part of an offering while the private pre-sale is the initial private blockchain round. Theoretically, a company can have a private blockchain money raising round, followed by a public ICO. In this case, the company is using a private pre-sale ICO for initial funding, then supplementing the seed funding with a public offering. Conversely, a company can have all fundraising done through private placements.
This leads to the most important question regarding private funding ICOs–how can they help your blockchain project?
First, undertaking a private placement ICO will help you raise money privately for your blockchain project. This can help you attract legitimate, partner-minded investors versus the average Joe who just wants a get-rich-quick scheme.
Second, private ICO sales can help you navigate and avoid regulatory run-ins. By offering an investment opportunity to a smaller set of sophisticated investors, you are less likely to get into trouble with federal authorities. One of the biggest criticisms of ICOs from the outside world is that many are designed to rip off the general, uneducated public. By targeting private, educated audiences, your ICO will be untouched by these critiques.
Third, private sale ICOs allow you to be much more flexible in your offering. You will not have to compete with the generic blockchain startup promising to “change the world with blockchain technology” and offering ridiculous terms and conditions. Instead, you will be able to design your offering terms to fit your needs and specifications, while also catering to the needs of your select investors. Because the ICO private pool is much smaller, you can also develop relationships with your investors–if you haven’t already–and negotiate throughout the process.
IBC’s ICO private placement services will provide you and your startup team with everything you need to launch a successful round (or rounds) or private ICO funding. Click here to view our menu of services.