ICO means "Initial Coin Offering". It's a special form of crowdfunding based on cryptocurrency. The whole idea is rather simple. When a company needs some money for a project development, it releases crypto-tokens and sells them in exchange for cryptocurrency like Bitcoin or ETH (Ethereum currency). So, the company gets enough money for fulfilling its goal, and buyers get crypto-tokens. They can do with these crypto-tokens whatever they like: sell them, send to anyone, exchange for another cryptocurrency or "real" money, and even buy services or goods.
A short ICO FAQ
What are the differences between ICO and IPO? While in IPOs investors require real shares, in ICO they require tokens which can be called cryptoshares. But they're not equal to real shares because in most projects they don't give their owner the voting power or a share in the ownership of a company. So it's more like crowdfunding though instead of gifts for pledges you get tokens.
Then why contribute to an ICO at all? First, you're helping a company to start something big and perhaps useful for mankind. Second and even more important, you can start trading your tokens on blockchain exchanges and make lots of money if ICO is successful. For example many ICO's are established for developing new cryptocurrencies, and one day one of them may get bigger than Bitcoin right now (like Ethereum or Ripple).
I don't care about cryptocurrencies. It's OK. Because ICO can be used for anything like creating new living stream platforms for gamers, real products of any kind and even shooting movies.
Stop! Is it legal? Let's say it's not illegal. No government in the world still managed to specify ICO legal status (though it won't take long). But right now anyone can launch its own ICO and make money for themselves and their supporters.
But is it safe? To launch an ICO a company needs to establish a legal entity. Then list all the conditions and terms of the ICO in a special document both in a written and a digital form (a smart contract). Besides all the currency gained from contributors is stored in an escrow wallet that requires private keys. One of these keys is always transferred to a trusted third party. And if the ICO fails to reach its minimum cap, you just get your money back.
Still I can lose money! Yes, you can. So you should be aware of ICO scammers. There are numerous "symptoms" of an unreliable ICO: anonymous founders, no escrow wallet, some unrealistic or even crazy goals listed in their white paper, a lack of transparency.
What is preICO? The cost of an ICO may vary from 10 000 $ to 1, 5 million $. So a preICO is needed to raise funds for an ICO. It usually has a much lower minimum cap and uses a very different smart-contract compared to actual ICO. The contributors usually get a cheaper price per coin and some other benefits like early access to some company products, programs, etc.
How to launch your own ICO
There are some initial steps you should take before launching an ICO:
White Paper. You'll need to write a well-considered document describing all the potential benefits of your project for investors including: marketing analysis, product specifications, use cases and the project development roadmap. You'll need to convert your White Paper to other languages especially if you're looking for investors abroad.
Marketing website. It should be not only delightfully designed but have following sections: a video-presentation and a description of an ICO, a subscription form, a roadmap, all the contacts, links to social networks, use cases, list of advisors and your co-workers. Make sure that the website is strongly protected at least from most common vulnerabilities such as SQL injections, XSS, broken authentications.
Smart Contract. You'll need to write a smart contract. If you know nothing about smart contracts, you'll probably have to hire expert developers.
Advertising. You'll need to spend some money on advertising creating hype in media. And do investor outreach in every possible way from face-to-face meetings to cold-emailing. Probably you'll need to launch a bounty campaign: your contributors will promote your ICO for a reward in tokens. It's a common practice for ICO-startups.
Wallet. That' the obvious part but still you'll need to launch your escrow wallet.
Your own tokens. Then you'll have to publish your tokens on different cryptocurrency exchanges and start selling them to your intended audience.
Though it may sound a little complicated still it's much easier and cheaper than establishing a traditional IPO.