An ICO is when companies in the cryptocurrency space try to raise funds from potential investors. It is much easier for them to set up an ICO than to try to get venture capital or capital from banks. If an ICO starts early, investors can buy tokens out of the pool (often a fixed percentage of the cryptocurrency).
But the fact that it is more or less quite easy to set up an ICO is the very reason to be careful when investing in them. There are a lot of scam ICOs which will probably never deliver what they promise. When an ICO starts, the company usually gives investors the best case information about their plans in this format:
- a decent whitepaper which represents the idea of the project
- the amount of money the startup needs to really get going
- the distribution of the tokens i.e. the amount which will be issued/the amount the founders will keep for themselves
- fixed time frames for the different phases of the ICO, and the minimum funds which are required
Ethereum, the smart contracts platform which is well-known and very successful nowadays was one of the most successful ICO projects ever. They raised $18 million in Bitcoins (equal to $0.40 in ETH). Today, the price is in the area of $300 at a market cap of over $1 billion.
Of course, not a lot of ICOs are successful like that. A lot of companies just want to collect money easily and quickly without having a decent plan to achieve what they promise.