ICO Guide. Are You Thinking About Using An ICO (Initial Coin Offering) To Raise Funds? Are You Sure Your ICO Advisor Adds Value? No? Let us help you write your White Paper.
What is an Initial Coin Offering all about?
Anyone who has been following the Fintech (FInancial Technology), Crypto (Cryptocurrency or Tokens) and Blockchain space, as a potential participant or just a casual reader — must have become accustomed to reading a new term in many recent stories — ICO. The fundraising didn’t happen by selling out the equity of the company but by selling something called ‘tokens.’
Are ICO’s just a fad that will fade?
The infographic above shows just how explosive the growth in ICO’s has been, from a zero base in 2014. By all accounts, my research shows that companies have actually raised more money through ICOs than from VCs (Venture Capital) in 2017. Getting money for your business is of course awesome, but I believe that ICOs are more than just a tool to raise some capital.
Who can use an ICO to raise funds?
If you have an idea for a business or are trying to expand your small startup, it’s a challenge to get funding. A new trend in blockchain technology allows companies to pre-sell access to services as a way to fund the development of those services. Companies create a token that grants the holder access to products, services, or subscriptions from the new startup.
The initial coin offering (ICO) allows startups to sell those tokens before the company launches, as a means of fundraising. This means startup companies can raise large amounts of seed capital from individual investors, democratizing startup funding.
An ICO can be an extremely effective way to raise capital for your business. However, it involves a fair amount of community building, technical expertise, and foresight about regulatory compliance. If you’re willing to take on these challenges, the payoff can be significant. Not just in raising funds, but also in establishing a community of supporters around your idea.
ICO fund-raising sits somewhere in-between a Kickstarter campaign and a conventional IPO selling shares in a company (depending somewhat on the rules in the country of operation). Typically, Blockchain based technology is used to issue and sell ‘tokens’ for a tech start-up, with the start-up usually leveraging Blockchain tech to do something novel. The tokens provide a benefit to the buyer, which could be anything from a revenue share in the company to a means of buying whatever product or service the start-up is creating.
The Ethereum Blockchain network is particularly well suited to running these types of campaigns, using ‘smart contracts’ for fund raising – transparent contracts where everyone knows the rules, and which are cryptographically enforced. For instance if a campaign doesn’t meet its minimum raise funds are automatically returned to investors. The fact that Ethereum-based campaigns have to use Ethereum’s associated digital currency (Ether) has seen the price of Ether rise from $1USD to $300 since January 2016 – not a bad return!
The ICO has become an attractive way of fundraising; Blockchain makes the process very efficient, and this combined with a lack of regulation (when compared with IPOs) can make cost of raising capital very low – in some cases a Website and a ‘white paper’ describing the concept has raised $20M+. Tokens are usually limited in numbers and after completion of an ICO become publically tradable on digital currency exchanges (like Cryptopia); if a service becomes popular token demand will increase relative to supply and the price will rise, thus providing a return to the early adopters (investors). The very open-ness and decentralised nature of the whole process does create some problems as speculation and hype can create a lot of volatility. Having said that, there are some genuinely good ICO business models, backed by solid teams.
What’s the catch?
But ICOs are not for everyone. Fraudsters are taking advantage of this craze, but there are also legitimate practical reasons that ICOs may not be the best choice for a firm’s fundraising strategy.
In recent times we have seen many similarities between the requirements mandated by a company looking to complete a public listing on a regulated exchange compared to companies looking to raise capital through an ICO and eventually list their token on a cryptocurrency exchange.
One of the similarities between these two spaces is the need for an advisory board or a grouping of tenured, learned individuals who can provide credibility and value to your project.
The main issue — there are many advisors who seem to add the credibility piece, but no true value.
What does this mean?
We see advisors who have their name on 100+ projects each of which span extensive periods of overlapping time. An advisor cannot physically allocate enough hours in a day to provide true value to their clients.
Coins Coins Coins!
If you are reading this post, it is either you are planning to host an ICO or you are having an ICO or perhaps you are one of those service providers trying to develop your service. In short, you are likely to go through 4 steps until you finish your ICO.
This is the stage where you identify your goals, write your business plan or white paper, develop your website, and work on smart contracts. This should also be the stage where you join various blockchain events to build yourself a network. Specifically, during your idea stage, try to join ICO presentation pitches and write down the questions every ICO receives and make sure that you are prepared for these questions on your white paper.
It is true that not every ICO project goes through private sale, however if done properly this can help you make strong partnerships and raise funds as well.
Before you kick off your private sale, make sure to sign key advisors with previous successful ICOs experience. Utilize their experience and contacts. It is common to offer 10%-20% finders commission to these people. However, try to avoid those that come with retainer fees. Based on my personal experience they are the ones wasting time, just trying to make $15-20K fast.
A good opportunity involves contacting former investment bankers with startup funding experience. They often have good network of investors (not necessarily with crypto experience) that can invest $300k-400K to kick off your project.
Avoid having pre-sale period longer than 3 weeks. Based on our experience, if an ICO pre-sale lasts longer than 3 weeks, people get to be relaxed (internally and investors as well) and that in return gives lower results. Meanwhile, those ICOs with 1 or 2 weeks long pre-sale stage tend to sell out. Perhaps, related to urgency.
During your ICO pre-sale, you should also make sure to be present in at least 3-4 blockchain events. If you have an MVP, demonstrate it! You are likely to be approached by investment groups!
Similar to pre-sale, your main sale should not be longer than 3 weeks neither. It is best to have agreements with exchanges by the beginning of your main-sale. Yet, you should only announce the exchange listing in the last 10 days of your ICO.
Keep on posting on various media platforms about your progress. And remember, progress is not just how much you are raising, perhaps you can announce your Alpha or MVP before the end of the ICO. People love investing in those projects that they can use their tokens in.
I head a small team of Fintech and in particular Blockchain Evangelists, whose combined global network comprises some of the “who’s who” in this space.
We can be your ICO Guide before you appoint ICO Advisors, contact me. For a modest fee, we can assist you to find suitable candidates, or help you vet your existing shortlisted ones.
The additional benefit that we offer – we can also reach out to our network of institutional investors. That will shorten your fundraising timeframe and provide you with industry credibility, and also allow you to raise more funds quickly when you need to invest in more development or add to your headcount.
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