Yes. They may sound alike, but there are several fundamental differences between an Initial Coin Offering (ICO) and an Initial Public Offering (IPO). In fact, even though an ICO has been described by Bloomberg as "like an IPO, but with coins", the two are so distinct they have more differences than similarities.
When it comes down to it, both an ICO and IPO have the same purpose--companies use them to raise funds. However, that's pretty much where their similarities end. So, what are these differences?
Who and When. Let's start who raises funds with an IPO and an ICO, and why.
IPOs are often used by mature credible companies and tech startups to raise funds to further their growth. Here, the company making the offer already has a working product, with a sizable user or client base, and a financially stable business model. In other words, they already have something to show their investors. That's why whatever funds they raise will be used to further their growth and expansion. IPOs also only apply to private companies who want to go public.
ICOs, on the other hand, are used by blockchain-based companies and startups, usually at the beginning of a project to gather supporters and generate funds that can be used to develop the company's blockchain-based product and enter the market.
Public Offering vs Crowdfunding. An IPO and an ICO raise funds in different ways.
An IPO depends on the very formal and traditional public offer, which is subject to rigid rules, mandatory regulatory oversight and requires the company to publish a prospectus. A prospectus is a legal document that contains key information on the company, it's IPO, and other pertinent information that investors need to make informed decisions. The prospectus must also meet certain standards for transparency. This is because all information included in the prospectus can be relied upon in court, so it has to meet certain requirements.
In contrast, an ICO makes use of crowdfunding or in some cases, a private token sale, which are not governed by any regulatory body, authority, or law (at least not yet). Now, most ICOs do publish a white paper, however, there are no set rules on how to write one, nor are the companies required to meet standards of transparency. Meaning, they can publish as little or as much as they want, however they want to.
In addition, because of the formalities involved, and IPO is a much longer process usually taking months from its initial filing to approval. Facebook's IPO, for example began with it's initial filing on February 1, 2012, while it's first day of trading did not take place until May 18 of that year. Compare that to the Basic Attention Token (BAT) ICO, which lasted for only 30 seconds.
Securities vs Coins. Next, they also differ on the product on offer.
In an IPO, companies offer shares, for the first time to the public. These shares represent an ownership stake on the company, and depending on the type of shares sold (whether they are common shares, preferred shares, or a hybrid) entitles those who own the shares a dividend on future earnings and a vote in shareholder's meetings.
In contrast, an ICO offers "coins" or tokens in exchange for a legal tender usually in the form of Fiat, Ether or Bitcoin. These coins or tokens do not grant either an ownership on the blockchain project nor a dividend on future earnings. Instead, what the tokens and coins represent are functional tokens that will give its owners the ability to use the project in the future and participate in the token economy that will be built once the project is live. For example, the tokens sold in a blockchain-based rideshare app could be used by ICO investors to pay for future rides or to pay drivers who will use the app once it is launched.
Exclusive vs Inclusive. Finally, they also differ on who the products are for.
Perhaps the biggest difference between the two, at least for people like you and me, are the types of investors who can buy the shares in an IPO and the coins in an ICO. Whereas an IPO only sells shares to large institutional investors, with people like you and me only getting access once the shares hit the exchanges, ICOs are open to everyone.
This means that those who bought Facebook shares during its IPO had to wait until the first trading day to buy their shares, such that they were no longer buying directly from the Facebook company, but through third-party exchanges. And they were not longer buying it based on its initial price, but with prices that have already been subjected to market forces. In contrast, if that were an ICO, you wouldn't have had to wait for the coins to hit exchanges. Instead, you can buy them based on its initial coin price before it is subjected to market forces.
Not just an IPO with coins. These are the fundamental differences between an IPO and an ICO. Thus, while they might seem like the same thing, they are actually not. They differ in almost every aspect from the process, to the product, to its intended participants. And Bloomberg's description of an ICO as "like an IPO, but with coins" is not only a little misleading, it's actually missing the picture.
Hope this helps.
Sources:
- What's an ICO? Like an IPO But With Digital Coins. https://www.bloomberg.com/news/articles/2017-09-18/what-s-an-ico-like-an-ipo-but-with-digital-coins-quicktake-q-a
- ICO vs IPO: Major differences. https://hackernoon.com/ico-vs-ipo-major-differences-bd23890cb83b
- Crypto ICO vs. Stock IPO: What's the Difference? https://masterthecrypto.com/crypto-ico-vs-stock-ipo/