An ICO is similar to an IPO, or initial public offering, except instead of issuing stocks and shares in the company, ICOs offer coins or tokens within a blockchain network in exchange for funds. The journey of moving from idea to ICO is not without its challenges and should not be entered into lightly. In preparing our own ICO, we’ve learned some valuable lessons about what it takes to go from start to finish.
ICOs have become quite popular for companies that want to add blockchain technology and seek to raise the money to fund the expansion because coins and/or tokens can be given to financial backers instead of equity. Given that the founders are not required to exchange equity for capital, ICOs are sometimes referred to as non-dilutive financing.
The ICO is the public launch and can be thought of as the big stage when a coin steps out into the mainstream. To build momentum toward the big ICO event, a presale is used to attract early interest from accredited investors.
This period is often a series of discounted rounds meant to fund a development runway. For example, there might be six series of rounds — each available for up to 30 days — leading up to the ICO launch date. Accredited investors will be offered lower rates compared to the public launch price.
The rounds of discounts may start as high as 75 percent to 90 percent and may drop with each consecutive series down to only a small percentage off the price. Each round should also have a predetermined cap that the company seeks to raise. If the round reaches its cap of, say, $2 million, then it will close and move to the next discounted rate round.
Getting the Launch Right
In 2017, ICOs were used to raise a substantial amount of money. But the landscape has dramatically changed in just a very short time. This is largely because shady companies and scammers were using the mechanism to capture unscrupulous amounts of “free” money with no intention of completing the project.
Due to the abuse of the ICO investment structure, the U.S. Securities and Exchange Commission enacted significant regulations and declared ICO offerings to be securities. That means that in order to offer a coin or token to investors in a pre-ICO sale, it must adhere to securities laws and be extended to accredited investors.
The costs to prepare the appropriate disclosures, whitepapers, private placement memorandums, and investor decks are significant — easily reaching six figures. Then there’s the cost of determining the “tokenomics” of a new cryptocurrency, such as how many coins or tokens to create; their initial value; and the concepts around how they will be minted, unlocked, and utilized in order to grow in value. All this information must be analyzed, determined, and conveyed to potential investors in order to build up the necessary buy-in from a community of people willing to use this currency.
An ICO is successful only when it can promote its idea to the masses and get others to fund the project. Investors can gauge the likelihood of an ICO's success by the problem it seeks to solve and the background of the team involved in bringing it to market. If a project has a strong community, it’s a positive indication of public acceptance and a higher likelihood of success.
Lessons Learned From Our ICO
In the ICO space, many good teams and projects are not sufficiently promoting their messages and building communities around what they are promoting. Here are a few lessons we’ve learned the hard way through our ICO:
1. Solve a practical problem
If you’re not in the business of solving problems, you’re not really in business. Anyone can create a coin or token these days, but one of the biggest challenges in gaining community acceptance is figuring out how to provide maximum utility so the cryptocurrency can actually be used. If it doesn’t provide a benefit other than an excuse to raise money, it won’t be funded.
In your messaging to potential investors, focus on the problem your coin or token solves. Many investors will prioritize your token rising in value, but to hold their interest and convince them of potential value, you’ll need to convey why they should invest in the first place. For the best relationship with investors, help them share your vision for why it will be successful.
2. Deliver a strong message to build community
Even with a solid project that solves practical problems for consumers, ICOs are successful only if companies can promote their ideas to the public.
Community is critical in the crypto market. Most successful ICOs are successful only because of a solid community that is willing to back the currency with fundraising, dedication, and transactions. If a project has a strong community, it’s a positive indication of public acceptance and a higher likelihood of success.
In the ICO space, everyone claims to be a “guru.” Lots of people will want to “advise” you or will promise to put you in front of investors in exchange for an allotment of your token, as well as a monthly cash fee. Many media companies purporting to hold the key to raising money though their efforts that claim to provide ICO services will jack up their prices with promises to lead you to the ICO promised land.
Trust me, it’s a racket. Don’t fall for it. The space is far too young for as many experts as there are claiming to be. Don’t get me wrong: You will probably want to enlist the help of influencers and a PR agency. But focus on your message and trust your gut. The same principles of marketing and advertising apply, so don’t get hung up on thinking messaging for an ICO is any different.
3. Lock in a strong team
Launching an ICO requires a diverse, talented team. For example, we have about 24 people working to launch our ICO. You’ll likely need to rely on developers, finance experts, crypto advisers, marketers, designers, community managers, content producers, and more.
In addition to a strong team to handle the implementation and messaging, you’ll need a high-quality securities attorney. Don’t rely on just any attorney: Some ICO founders have gone to jail or are now under house arrest because they skirted securities laws. Make sure your attorney is experienced with ICOs before putting down a retainer, and then follow his or her counsel to the letter.
4. Prepare everything — everything — before launch
Rushing to market with a good idea can often result in foolish shortcuts and poor execution. Deadlines get tight and investors get impatient. Even if you get funding, you’ll only survive the process with all your ducks in a row.
You need everything — and I mean everything — lined up and on point before starting to market your ICO. This means your website; investor documents; social channels such as Twitter, YouTube, Telegram, and Discord; logos; content; and everything ready to be community-facing before you launch. Your brand messaging needs to be well-refined, and everyone on your team needs to be able to speak to it succinctly before you even try presenting your ICO to anybody.
Remember, you’ll likely get only one shot to roll out your ICO, so don’t jump the gun. If your idea is good and solves a real problem, you’ll get the funding you need in due time.
It’s definitely been a learning curve in understanding how to navigate this space, but we got through it because of the quality of our team and our commitment to solving a genuine problem. Should you decide to embark on your own ICO journey, buckle up and get ready for the roller coaster ride ahead.