IEOs and early-stage funding

An Initial Exchange Offering (IEO) is conducted on the platform of a cryptocurrency exchange. In contrast to Initial Coin Offering (ICO), the IEO is administered by a crypto exchange on behalf of a start-up which is seeking to raise funds with its tokens.

An IEO exchange limits the risks for retail investors as the exchanges conduct due diligence processes to study the potentials of a successful project. For a more adequate regulatory compliance, the IEOs also require KYC (Know Your Customer)/AML (Anti-Money Laundering) verification.

IEOs play a significant role in the more expanded venture capital scene. Similarly to ICOs, they are a form of crowdfunding, however, quality blockchain projects which sell a utility token to the public through an IEO, will already have a secured venture capital (VC) or seed funding for the company. In this way, IEOs enable the public to proceed to investments in the utility of private companies and not in the equity.

What this means is that a VC company buys the company equity and not the actual tokens and as a result, the amounts raised are proved to be much higher than the public IEO.

It has been shown that private funding has resulted from technology VC companies and this can prime companies for investment by private equity, namely large institutions, which are most of the times in charge of a company before it becomes public.

Private equity (PE), which is the investment funds that are used to buy and restructure companies that are not publicly traded, has presented outstanding growth during the past years in deal volumes and investment returns.

The expansion of PE also comes from traditional industries to future technologies which are led by blockchain and a few IEO projects which are based on VC funding could fall into the private equity radars.

More exchanges are expected to host IEOs as the minimization of risks will potentially lead to more lucrative profits.

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Published on: 27/09/19