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Initial Coin Offerngs, otherwise know as token sales or ICOs, occur when a new cryptocurrency is created on a protocol such as Ethereum or Counterparty. The value of the currency is determined by the startup team behind the ICO based on what they think the network is worth. Then, based on market supply and demand, the value is settled on by the network of participants.
Venture capitalists, who generally have been standoffish to the ICO phenomenon, are now becoming more interested in it for a number of reasons. One is profits — cryptocurrency investors made some massive returns in 2016, with cryptocurrencies from Blockchain startups Monero and NEM both seeing 2,000% increases in value. For example, the cryptocurrency used for the Ethereum network, called Ether, saw its value double in just a few days in March 2017. Yes, in three days, people who invested in Ether doubled their investment. Those investors can opt to cash out to a fiat-backed currency, or wait for the cryptocurrency to continue to rise (or fall). Volatility is a two-way street. While the price of Ether has been rising, Bitcoin has dropped 20% to $1,000 dollars from a record $1,290 on March 3, 2017.
https://hbr.org/2017/03/what-initial-coin-offerings-are-and-why-vc-firms-care
