Initial Coin Offerings (ICO) are events in which a new cryptocurrency project sells part of its tokens (digital assets) to early adopters and enthusiasts in exchange for Bitcoin, Ethereum or other cryptocurrencies (altcoins) to raise money for their operations. The ICO usually takes place before the project is completed, and helps fund the expenses undertaken by the founding team until launch.
The ICO participants are somehow invested in the success of the project. Reading the Whitepaper of each offering will help you understand what ICO token holders get in exchange for their money and how those tokens can be used to derive value from investing in them. In general, by owning a token one has the right and the incentive to participate in an economy (existing or future) but it does not reflect an equity ownership in a company.
Participants play an important role in an ICO as they can help get the word out and raise awareness in the public media or community. They also provide early liquidity for the cryptocurrency tokens when they start trading in the exchanges. The investors are also usually motivated by a profit potential if the project takes off and the tokens become worth more than the ICO price.
For example, Ethereum (ETH) was priced at about $12 in December 2016. And a year later, it’s over $300. So, if you had invested USD 1,000 at that time, you would have USD 25,000 in less than a year! This is only one of many successful recent offerings, see the list of ICO by return on investment.
New crowdsales of crypto assets have pulled in more than $1 billion this year. Arranging an ICO takes approximately 3-4 months. ICO sales stay open 30-60 days. After an ICO it takes 1-2 months to distribute tokens to crowdsale participants and convert raised funds to a project funding.