Why Is Blockchain Development Essential For Startups Seeking Investment Via ICOs and STOs?

Last Updated on: July 25, 2023

Why Is Blockchain Development Essential For Startups Seeking Investment Via ICOs and STOs?

Blockchain development has revolutionised the global FinTech space and is a predominant catalyst for several startups. It paves way for potential use cases like KYC, payment regulation, identity management, investment regulation and trade finance.  

As per a GlobeNewsWire report, the Global FinTech Blockchain is expected to reach 40.66% CAGR between 2023-2032. This market growth is a result of a rise in blockchain development company investments, growing startups and the growth of Small and Medium Enterprises (SMEs) worldwide. 

But do you know how startups in Initial Coin Offerings (ICOs) & Security Token Offerings (STOs) leverage blockchain? This article talks about how blockchain aids startup investments in ICOs and STOs.  

Our blog will shed light on the following sections:

Seeking Investments: What Should Blockchain Startups Do?

Startups using blockchain development have ample opportunities to seek investments. For instance, the investors pay out their funds in exchange for equivalent equity(including future profit) in the startup. 

Investors must scrutinise the startup before investing in its business capital. Hence, a startup should consider these aspects before raising venture capital for better investment opportunities: 

  1. Precisely analyse the goal of the startup
  2. Analysis of business reliability, USPs & revenue growth to avail startup funding
  3. Comprehending investors’ vision before raising venture capital
  4. Analysing your startup scalability & sustainability for investment opportunities
  5. Showcase startup’s patented concepts to offer investors potential revenue growth
  6. A clear assessment of management’s skills & expertise to handle venture capital
  7. Charting out the startup’s major milestones and significant growth rates
  8. Use startup funding ideas like venture capital funding, incubators, crowdfunding, etc

Let us now comprehend how blockchain development companies aid startups seeking investment via ICOs and STOs in the next section. 

How Blockchain Development Benefits In ICO And STO Investments? 

Blockchain technology can accentuate startups’ investment decisions via decentralising( democratising) & combating investment risks, and scaling transactions for business growth. This will also influence the investors to invest in blockchain-based ventures, thereby gaining their trust. 

Startups can raise venture capital by utilising the ICO fundraising model, which involves the issuance of tokens on a blockchain (a secure list of records maintained using cryptographic codes), and then exchanging those tokens for financial contributions.

Startups seeking investments via Initial Coin Offerings need proper monitoring and updation of blockchain-based decentralised digital ledgers. They need this to validate and establish the contributions made in distributed tokens. 

In the case of Security Token Offerings, startups have an upper hand in raising venture capital, as STOs are typically regulated via blockchain technology. It offers startups a wider scope of investment opportunities which includes both accredited & non-accredited investors. 

STO is one of the best alternatives to traditional crowdfunding where the startups sell securities to the investors in the form of tokens. Based on blockchain development STOs provide greater liquidity for investors as well as startups, as the security tokens can be traded on secondary markets. 

Blockchain Development Advantages In ICO & STO Investments

Blockchain Development Advantages In ICO & STO Investments

Following are the advantages of blockchain technology in startup fundraising via ICO and STO:

  1. ICO and STO transaction transparency for all stakeholders via immutable record keeping
  2. Lower costs by eliminating intermediaries in the fundraising process
  3. Decentralised security for investors’ investments as well as for venture capital
  4. Interoperability in investment opportunities & global pool of investors for all token issuers
  5. High liquidity based on increased token issuance and asset tokenisation
  6. Cryptographically programmed assets representing company shares

Tokenisation & Smart Contracts: Blockchain Development For ICOs And STOs

When it comes to startup fundraising via ICO and STO, there is high environmental uncertainty and significant information asymmetry between entrepreneurs and investors. This can greatly increase the transaction costs associated with financing. 

Now, a crypto token is a digital token on a blockchain network that can be traded or used as a currency for investment purposes. It is commonly used in ICOs and STOs to raise funds for various startups & businesses.

In addition, tokens can serve various purposes such as facilitating decentralised exchanges and enabling the sale of unique items as Non-Fungible Tokens (NFTs) on decentralised marketplaces.

Smart contract automates ICO & STO fundraising process (token distribution & dividend payment). It offers disclosure, market integrity, & fair token issuance 

Therefore,  tokenisation & smart contracts for ICOs & STOs aid investors in being able to purchase regulated financial securities in form of ICO and STO tokens, which function as investment contracts similar to those of traditional financial instruments.

Endnote: Blockchain Disrupting Centralised Investment Models

Blockchain helps in mitigating traditional fundraising barriers like currency exchange rates & cross-border regulations. This offers startups and small businesses to fetch venture capital from global investors.

To democratise investment and capital markets, blockchain developers are innovating decentralised fundraising models. This will help companies to adopt decentralised fundraising and propel their startups forward.

If you are looking forward to hiring blockchain developers for FinTech app development, connect with us! Systango as a blockchain development company can help you rethink your startup operations and investments with efficacy. 

Shaonika Saha

March 25, 2023

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