Traditionally, there are three main ways for a company to raise money:
But these days, there is one more popular way of raising funds. Some technology startup companies are raising money in a new way, by issuing digital tokens in return for funds. This is called an which is Initial Coin Offering(ICO).
ICO funds are usually received in Bitcoins (BTC) or Ether (ETH). The project creates a Bitcoin or Ethereum address for receiving funds and displays it on a web page. This is like opening a bank account, and displaying it on a web page for people to send money to. Investors send BTC or ETH to the published address, in return for the new tokens. The project uses the BTC or ETH to pay staff, or sell the cryptocurrency for fiat currency on a cryptocurrency exchange to fund the project.
Token Holders are normally promised certain rewards by the issuer. Depending on the rewards promised by the issuer, tokens could potentially be classified as a security. Once the ICO has ended, the issuer will work with exchanges globally (such as Bittrex.com) to list, and allow token trading on secondary markets.