ICO vs IEO vs IDO vs Rewards Crowdfunding vs Equity Crowdfunding

I get a huge amount of correspondence on these various formats of crowdfunding, and it’s surprising how much of a misunderstanding or lack of understanding there is about each one, even among mainstream professionals. So, let’s define them all as simply as I can.

Rewards Crowdfunding: This is the classic Kickstarter or Indiegogo model we all know and love. You back a project you like, and in return, you get some kind of reward – maybe an early version of the product or some exclusive gear. It used to be fun and engaging, although more recently we have seen Kickstarter used as a regular revenue channel. It doesn't give you any ownership in the project. It's like pre-ordering a cool gadget and getting a bonus T-shirt. Notable example - Brandon Sanderson who raised over $41m in a Kickstarter and has since backed that up with a $23m project on BackerKit.

Equity Crowdfunding: Now, equity crowdfunding is completely different. Instead of getting a product or a reward, you actually buy a piece of the company. It's like becoming a mini-investor in a startup. If the company does well, you share in the success. But if it flops, your investment could go down the drain. It’s like playing Shark Tank from your living room. Investments are usually made through regulated platforms such as Seedrs, Republic or Crowdcube. These investment can be in the form of various instruments (SAFE etc.) or straight equity. Note that these investments usually fall under the regulation of security laws. Notable example - BrewDog equity for punks which raised over £20m in its last round.

ICO (Initial Coin Offering): Think of an ICO like a digital version of a Kickstarter campaign, but with cryptocurrency or token. A company creates a new crypto token and sells it to the public to raise funds - usually through their own website. This can be a security or utility structure. Investors buy these tokens hoping they'll increase in value. ICOs were super hot a few years ago but have cooled off due to regulatory scrutiny and some high-profile scams or Rug Pulls. It was like the wild west of fundraising, exciting but risky. Notable example - the EOS ICO which raised $4.1 billion.

IEO (Initial Exchange Offering): IEO is like an ICO but with a bouncer. Instead of selling tokens directly, a company partners with a cryptocurrency exchange to sell the tokens on their behalf. The exchange somewhat vets the project, which adds a basic layer of security for investors. It's like having a trusted middleman who helps ensure things go smoothly, making it a bit safer than the wild ICO days. Notable example - BitTorrent which raised $7.2m initially on the Binance Launchpad.

IDO (Initial DEX Offering): An IDO is like the hip, decentralized cousin of the IEO. Instead of selling tokens through a centralized platform, they do it on a decentralized exchange (DEX). This means more transparency and less chance of manipulation, but it's still a new and evolving space. Imagine throwing a party where everyone can see the guest list and transactions – that's an IDO for you. Notable example - Orion raised $3.75m in 2020.

Does BrewDog offer tokens?

This is actually an interesting question. As you may know, BrewDog was a pioneer in equity crowdfunding. I’m a fan. This is something I’ve been wondering. As part of investor perks, they have sent drink tokens to investors on birthday’s for example. And these absolutely are utility tokens. Without doubt, at first principles. So yes.

And James Watt had mentioned in the past through X that they were playing around with the idea of giving investors the opportunity to tokenize their investment. Presumably so they can turn it into revenues..

“When we launched Equity For Punks in 2010 we pioneered a whole new generation of business model. Now we are working with @globacap to explore giving our 210,000 Equity Punk investors the opportunity to tokenize their equity holding in our business. Watch this space.” Further commenting: “We will, of course, consult with our community before we make any decisions here and this would be optional.”

It got a bit of pushback though, with some not liking it. As we know, James doesn’t like bad PR! So not sure if anything came of it. I don’t believe so. If I was cynical, I’d say it was a nifty way of cleaning up a cap table, and turning the investment into revenue…but that’s just me!

Either way, BrewDog has recently gotten into blockchain, initially by allowing payments for equity and beer in crypto, and more recently by backing Degen Distillery (along with Google it seems!) You can find their Whitepaper here: https://www.degendistillery.com/whitepaper

(PS: For analysis only - we NEVER offer investment advice.)

This is a really interesting case study for utility tokens actually.

“Founded in 2023, Degen Labs is an innovative Web3 company that is leveraging blockchain technology to sell Degen Distillery drinks products through a Web3 social distribution mechanism which tokenises sales agreements into a revolutionary new form of real-world asset (RWA).” This is a form of social distribution which lives in a ‘Tokenised Affiliate Protocol’ framework.

The company goes on to tag it ‘a radical social experiment.’ And maybe it is. I haven’t seen any results yet, but I note they have launched their 721 vodka. I’m a little disconcerted again at the lack of clarity in the messaging, but it is a type of affiliate selling framework. Then the question - why? What’s the advantage over getting paid in old fashioned cash? And how many sellers are going to have distribution knowledge?

Don’t get me wrong - I like the direction. It’s attempting to link the real and digital world with the ecosystem. Which I think is the future. But how many people can you really expect to be able to sell effectively? Time will tell. And having BrewDog on board certainly is a good start…

Anyhow, a good start.

Quick poll before you go:

Sanderson to BackerKit?

Surely not - Brandon Sanderson the author with the record $41m for a Kickstarter campaign - moved to BackerKit? It is true - and followed up with a (smaller!) $23m campaign. Jees..