A few years ago, there were a relative handful of startups entering the ICO market, leaving investors without many choices. In those days, regardless of which ICO one chose to add to their portfolio, the results were a spectacular return on investment.
Times have changed. Now, there are thousands of ICOs on the market with hundreds more that have announced their opening dates. With so many options, the question for any potential investor is how to properly diversify their portfolio.
Traditionally, an investor could use venture capital to purchase shares in a startup. This, of course, would be done with the expectation of receiving a yield on investment within a few years on average. Once the shares were purchased and the startup was launched the shareholder would then receive dividends from the profits based on the percentage of shares held by that investor.
For example, if an investor purchased two percent of the shares in a startup, after the startup launched and produced profits of say $200,000 a month, the investor who bought two percent of the shares would receive $4,000 dollars in monthly dividends. This would go on until they either decided to liquidate their shares with this particular company, the company was purchased by another entity, or the company conducted an Initial Public Offering (IPO).What Happens in the Case of ICOs?
In ICO investments, an investor receives tokens instead of shares. These tokens have an inherently different function to that of shares. Instead of receiving dividends, as is the case of venture capital investment, token holders are given a digital asset that will accrue value according to market demand. In this scenario, the token holder might be able to set a minimum price for which they are willing to sell the tokens.