An introduction to ICOs
ICOs are used to raise funds for a startup whilst avoiding the costly and involving process of an IPO. Initially, ICOs were introduced with the idea to pre-sell coins/tokens to investors and fund new projects. At the centre of the ICO is the whitepaper, describing the technical specifications and business model of the project. A timeline is set and a coin distribution and target budget are decided. At the crowdfunding stage, new tokens are purchased with crypto-currencies like Ether and Bitcoin.
The most important factor to consider when deciding to whether use an ICO for fundraising is how the token will integrate into the core of the startup. How will blockchain technology aid your business, and how do you see token value increasing in the future? What problem is being solved by the business proposition, and why is blockchain technology vital for solving it?
Token values are volatile once live on coin exchanges and their survival is based on the continued interest of investors. For this reason, coins that are underpinned by a solid, tradable business model and team are the most sustainable.
Since there are so many ICOs out there, the success of your fundraising will depend on the following:
1. A capable team of content writers, PR, designers, UX developers and technical programmers. It is crucial to have a list of all major team members, along with their faces and social media profiles openly available to any potential contributor. Not necessarily part of the in-house team, translators should be employed to make the site and white-paper multi-lingual in, as a minimum, English, Russian and Chinese. When writing responses on forums or social media it is not advised to use online translation services, as a poorly translated answer might discourage international investors.
2. Whitepaper (20-30 pages) – the single most important marketing tool and the blueprint for your ICO offering, outlining technical features for expert ICO investors. Whitepapers consist of an Introduction and overview/summary of the project, what problem it solves, what market it operates in and why introducing a blockchain solution will provide an advantage over competitors in the same sector. Potential ROI, prospects and ICO roadmap. This will be followed by an outline of the token, its function and economics, and any tiered bonus schemes that may be employed. The whitepaper will also list the team and advisors.
3. High quality website which clearly defines the terms for investors, with proper back-end infrastructure. These are usually single page sites with all information displayed in a particular hierarchy. There are certain conventions that have evolved in ICO site design.
4. A provable working prototype of the token. Make this the focus of the campaign. Having completed the creation of the new cryptocurrency on a protocol such as Openledger, Ethereum or Counterparty, releasing a beta preview is a great assurance for investors. There are third party platforms that can help but offer less customisation and development.
The Waves Platform is one of the largest such platforms. It allows anyone to set up a digital token in minutes and at almost no cost. These tokens can then be listed on Waves’ own exchange.
Tokit allows Content Creators of any kind to create their own tokenized economies, by representing their creative projects through tokens on the Ethereum blockchain.
5. A clear definition of financials. Premiums for early investors, a multi-signature escrow wallet for the contributions and a process for returning the funds in case of failure.
ICO Pricing mechanisms
– Undetermined Price ICO: In such ICO the developer may not initially sell their tokens, thereby allowing investors to take new tokens proportionally based on their investment.
– Fixed Price ICO : The developer fixes a price or exchange rate of the new token. Such an arrangement allows multiple token purchase at a fixed price. Fixed price ICOs are usually accompanied by a freezing period where investors can’t trade their tokens. Post freezing period, investors can list and trade their tokens.
– ICO with price rise : A fixed exchange rate is set by the team and early investors get the best price per coin while the rate increases steadily with time.
Freezing or lock-in period: Decide whether there will be any freezing or lock-in period. Will you get access to the new tokens or coins within 3–4 months of the ICO?
Cap on coins/tokens: Proper information on number of coins to be created should be given. Will more coins be needed in future to fund further expansion? Or will the team keep back a percentage of the initial coin offering for fundraising later?
6. Social Media and Marketing. The more social media outlets that can be covered by the team, the wider the reach will be. Social media can cover new announcements, event appearances, links to blog posts (usually on third party sites), roadmap updates, funding updates and paid-for advertising. All employed channels must be active and updated regularly. Respond to questions or criticisms that arise within hours. The most common messaging apps adopted by ICOs are Slack and Telegram, allowing investors to communicate with the project team and other potential investors. Monitor these channels regularly to dispel erroneous claims and create confidence.
Cryptocurrency forums are used by international investors who are able to review, ask questions and debate ICOs. A few examples are listed here:
ICO listing sites
These websites (some free, some paid for) list all the upcoming, current and completed ICOs. It’s worth getting listed on as many as possible. Examples are as follows:
A bounty campaign is where you offer your token as a reward to people in exchange for various promotional activities, for example a signature in a cryptocurrency forum to someone writing an article about your ICO. Proceed with caution however, as it can be quite transparent that someone who is posting about your ICO is simply doing so because they have been offered a bounty.
Important! Keep it legal
A clear understanding of the following within the territories you are operating is very important:
- Corporate formation
- KYC, AML, and Compliance
- Data protection
- Tax law
Know where your investors are and where the money is coming from. Identity Mind have a plugin which helps handle anti money laundering (AML) requirements: https://www.identitymindglobal.com/ico