STO - Security Token Offering

Chapter 1, Introduction to Blockchain, covered topics about blockchain technology and, specifically, the details regarding bitcoin and Ethereum. From our discussion, you should have got the idea that blockchain is a decentralized technology. Companies, government institutions, and international organizations (for example, UNICEF) are utilizing this technology to improve efficiency and lower costs.

Whenever a disruptive technology emerges, startups are commonly the pioneers in turning it into real applications and disrupting current business models. A fundamental question is how these startups are funded. Without being properly funded, there will be very few or no startups working on new projects, which will ultimately affect success or failure of the new technology. For raising funds to support blockchain startups, new funding methods, for example, initial coin offering (ICO) and STO, were invented and used, in addition to traditional funding methods.

In this chapter, we will first talk about traditional fund raising methods, such as angel funds, venture capital (VC) funds, private equity (PE) funds, and initial public offering (IPO). At the formation stage of a startup, angel funds or seed money plays an important role. VC funds start to invest after a startup passes the formation stage. PE and other funding sources will support the company until it becomes mature enough and is ready to go for an IPO. With an ICO, a startup takes a different path.

At the formation stage, most blockchain startups bypass the private fund raising steps, and directly turns to the public for investments. STOs, the most promising alternative to ICOs, will likely support future growth of the blockchain industry after the ICO bubble burst.

Therefore, in this chapter, we will discuss ICOs and STOs in detail. More specifically, we will cover the following topics:

• A traditional fundraising roadmap for startups
• The initial coin offering
• The security token offering