How Indian Startups are Fundraising With Cryptocurrency ICOs

A new method of raising funds is available to companies and startups similar to that of the existing IPO or initial public offerings. The trending alternative, called ICOs or initial coin offerings is based on cryptocurrencies. The use of this platform for fundraising has led to a capital advance of over 200 million dollars for Indian startups in just a few or one time pitch of ICOs. On a worldwide scale, startups have managed to raise 3.7 billion dollars, reported by the accounting firm EY. The use of ICOs is not limited to only Indian markets as startups take their fundraising to foreign investors and markets.

When fundraising via ICOs the startup has to give prospective investors special crypto tokens that can be redeemed later for cryptocurrency. The investor in return invests funds into the startup venture in the form of Bitcoin or other Altcoins. It is a similar process in IPO but investors are granted shares instead of tokens.

One successful startup that used ICOs for fundraising in its initial stages was Drivezy, which is one of the first peer-to-peer platforms for sharing vehicles. The co-founder, Abhishek Mahajan, credited the alternative crypto-based strategy and stated, “We had been operating for three years and had achieved significant traction. But the problem was we needed a lot of capital to put cars on our platform. Instead of reaching out to VCs, which would have led dilution of our equity, a couple of Japanese investors suggested an ICO”.

Another success story comes in the form of a crypto exchange platform called Belfrics.The exchange was founded in 2014 and was able to raise upto $2.2 million by using an ICO pitched the year before. Praveenkumar Vijayakumar, founder states that “We raised funds to build a KYC-compliant blockchain and a token exchange platform. The funds came in bitcoins and most of our investors came from Europe".

One of the most beneficial aspects of using an ICO for fundraising is that the startup that initiates one can make the rules for the investors. They control the length of time that the ICO will remain open for investment, the value of the redeemable token, and even when the token can be exchanged for cryptocurrency. For Belfric, the exchange platform set the rate of their tokens as 2000 Belfric tokens being equal to 1 Bitcoin. After their fundraising period ended and they met their capital goals, the ICO was closed. Their investors were free to either cash in the tokens or trade them on token exchange platforms. When the ICO closes the startup no longer regulates what the investor does with their remaining tokens.

The uncertainty surrounding cryptocurrencies in the India market drives startups to find other sources of funding for their ventures. Some of the best countries to get ICO based funding is the US, Europe, and Singapore. Belfrics found investors from Singapore and  Drivezy raised capital in Japan.