Blockchain-based Fundraising vs. Traditional Fundraising

by | Sep 3, 2020 | Industry | 0 comments

Fundraising has been taking place for as long as people have been using money to carry out business transactions. For many years, the options available have grown from self-funding and peer-to-peer loans to early applications of what we now call angel investors, bank loans, government grants, and internet-based crowdfunding.

In recent years, a revolutionary alternative, blockchain-based crowdfunding, has risen. In this article, we will analyze traditional fundraising methods and blockchain-based crowdfunding, compare their potential, and highlight the advantages and disadvantages of each.

Traditional Crowdfunding Methods

Bootstrapping, Family and Friends, Credit Cards

These methods share some similarities in the advantages and disadvantages. By bootstrapping the project themselves, requesting families and friends to join hands, or using credit cards to cover expenses, individuals launching startups can enjoy more control over their businesses.

Although they can succeed and pay back their investment capital, there is a great deal for more potential efficiency and flexibility in running the business without having to justify decisions to colleagues or getting approval. Conversely, there is a great deal of more personal risk involved, not just financially, but also through the risk of losing friends and family should the business fail. By depending on themselves, or those close to them, investors using these methods are also limited in the amount of funds they can raise.

Bank loans

If a startup can produce a solid business plan, then approaching a bank for a loan is a possible option for raising funds. While a bank loan must be paid within the stipulated time, a bank is unlikely to lend capital where there is no collateral involved. Therefore, investors are persuaded not to borrow beyond their means to repay.

Angel investment and venture capital

For investors who need more substantial capital, angel investors, or venture capitalists act as an excellent alternative to securing capital. Not only do these sources offer huge funds, but they also serve as resources for the expertise and professional assistance. Since angel investors are allowed to vet a project before bumping their capital in it, it is harder for startups to get angel or VC funding. Still, for those startups that manage to secure VC or angel funding, they have to put up with the oversight from the investors.

Government grants and business loans

Different countries offer a wide variety of loans or grants allocated for startups. Although such loans provide the much-needed funds, they have proven to be difficult and time-consuming to secure. Prospective businesses must consider the available options open to them in the countries they are located, or able to work in.

Blockchain options

Blockchain fundraising options have many benefits compared to traditional methods, although there has been worry regarding regulations and compliance for blockchain funding since its inception. The fear and uncertainty of blockchain fundraising are being defeated by the introduction of new types of blockchain funding options available in blockchain investment banking platforms like Tokenizer.

ICOs

Initial Coin Offerings allow people of different races and geographical locations to finance the development of a business. Since ICOs were the first blockchain-based funding option, there was a lack of oversight, and by the end of 2017, ICOs became a significant source of fundraising. Unfortunately, some evil characters abused this method of funding, throwing it into disrepute.

STOs

Security token offerings were created as an alternative to abused ICOs. They strived to bring regulation to blockchain-based crowdfunding.

IEOs

Initial Exchange Offerings are the most recent prototype and improvement to ICOs and STOs. They have similar motives, but they utilize efficient and accredited ways. Generally, IEOs combine the public accessibility of crowdfunding websites, ICOs, and STOs with some aspects of assistance and guidance for different phases of a project that an incubator or angel investor might bring.

Benefits of Blockchain-based crowdfunding

Immutability

The use of cryptography techniques and coding of smart contracts, blockchain-based crowdfunding methods are trustlessness. Once a smart contract has been written, the outcome (funding of a project, the result of a vote) will automatically be executed when the conditions are met.

Elimination of intermediaries

As a trustless network, blockchain-based crowdfunding methods eliminate the need for intermediaries and the inefficiencies they create. Therefore, blockchain-based methods are less prohibitive to invest and facilitate 24/7 trading. The elimination of mediators also means that there is little chance of mischief.

Fractionalisation

Blockchain-based methods have infinitely-divisible tokens that enable investment at micro-levels. For instance, a token can be issued at $50 or even $0.25, enabling more potential investors globally, who cannot afford to take part in traditional investments to own assets.

Flexibility

Smart contracts and tokens can be customized to do anything that is codable, providing limitless potential alternatives to benefit investors.

Do you want to raise funds through a secure and trusted blockchain-based platform? The Tokenizer is a banking platform for investing, fundraising and trading through asset-backed tokens to bridge the world of traditional finance into a blockchain-based ecosystem. Visit our platform today and realize your dream of raising funds from one of the largest networks of investors globally.

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