Startup companies discover new unregulated fundraising goldmine

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Several startup companies have figured out a way to bypass Wall Street and legal regulations in a new, innovative way to raise huge amounts of money in order to launch their businesses.

A report in the Wall Street Journal outlines how two little-known companies together recently raised almost $400 million from investors in just a matter of days – and they did not do it through the traditional Initial Public Offering method.

The new fundraising method, called “Initial Coin Offerings,” is taking off like a rocket.  WSJ reports that companies have raised over $1 billion using this method, so far this year – ten times the amount raised in 2016.

Two software startups – Dynamic Ledge Solutions, Inc., and Block.one – have raised about the same funds from investors as what other companies are averaging by going the traditional IPO route – and they’re avoiding the cumbersome rules and legal regulations that are attached to the IPO method.

On the downside, their success could attract great scrutiny from regulators, both in the U.S. and in other countries, WSJ noted.

When investors participate in a coin offering, they don’t receive any ownership in a company – they simply hope the coins will rise in value as the company grows.  It is compared to buying a ticket to a game or Broadway performance months or even years before the show takes place, with the ticket possibly being worth much more later on that it’s original purchase price.

The Initial Coin Offerings are described as similar to “crowdfunding campaigns,” than a traditional securities offering. However, if the company tanks, the coins would be worthless.

The coin offering explosion has created tremendous grown in both bitcoin and ether, two virtual currencies which investors use to purchase coins.

Last weekend, Block.one reportedly raised $185 million worth of bitcoin and ether in its initial offering, while Dynamic Ledger raised about $212 million between the weekend and Thursday, WSJ reported.

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