Today, Bitcoin and Ethereum rates keep high level. That is why a lot of new crypto-currencies appear every day and is getting popularity. One of the most comfortable und frequently useable ways to create new crypto-currencies and raise funds for blockchain startups is ICO nowadays. This is a new model of crowdfunding for crypto currency. However, as it often happens with crypto-currencies, there are many legal issues which scammers use skillfully and that is why this scares off potential investors. Of course, the most important question for everybody is how successfully conduct an ICO campaign and attract money to the project without losing investor confidence. However, there are a lot of another questions which we need to find answers.
1. So what is ICO and why we are interested in it?
ICO is relatively a new concept of raising funds for launching new crypto-currencies and blockchain-projects.
The abbreviation of ICO means Initial Coin Offering. In fact, this is a model of crowdfunding (collective cooperation of people who voluntarily pool their money or other resources through the Internet in order to support the efforts or founders of startups). The company issues a certain amount of crypto-token. So, what is it and what does it mean?
«Token» (also a hardware token, USB key, cryptographic token) is a compact device designed to provide information security for the user, is also used to identify its owner, secure remote access to information resources, etc. Typically, this is a physical device, used to simplify authentication.), and then sells it to its target audience, most often in exchange for bitcoins or fiat money. And what about fiduciary or fiat money? It means money, the nominal value of which is established and guaranteed by the state, regardless of the cost of the material from which the money is made.
That is, users transfer bitcoins to companies now, and in return receive a new currency, which helps them to get from the startup some benefits in the future. For example, for Storjcoin X, you can purchase a certain amount of disk space in the Storj cloud storage. In contrast to shares, tokens do not store information about owners.
2. Is ICO suitable for any project?
No, of course. If you approach the campaign unreasonably, it can even damage the startup. Some entrepreneurs are sure that ICO allows you to gather money quickly without long and expensive process of registering an initial public offering of shares. When the concept of ICO just began, it was so. But like everything connected with crypto-currencies, ICO is developing rapidly. There are informal standards that now play the role of requirements for a successful campaign. Pillars which the crypto-currency market based on is authenticity and transparency. So if you want only easy money, you cannot get it.
3. So, should I conduct an ICO campaign for my product?
It depends on whether you can accurately integrate the crypto currency, which you sell to users in your product. For example, “broadcasts” were originally tokens, which were released during ICO campaign for Ethereum,for a platform, which creates decentralized online services (Đapps). Now this is the second of the most important crypto currency after bitcoin.
The usage of your currency should not be limited by transactions on the exchange: it almost always guarantees a collapse after the end of the ICO campaign. Any digital token, which is released during the ICO is exposed to serious speculative pressure in the market. The only thing that can counteract process of depreciating the token is a high demand. That is why it must have real profitability to people need your crypto currency.
4. What should I focus on before start ICO?
The practice of many successful ICOs shows that the audience is interested in three topics the most: team, goal of project and protection of investor*s interests. That is why, you must clearly identify and represent who is working on the product, what are its goals and what value it represents for participants in the ICO campaign, and spread this information.
5. How can you build a team for ICO?
Never talk to strangers.
Due to an investor’s point of view, the excellent team behind the project is one of the most important factors in making decisions to participate in ICO or not. No one will invest in an anonymous team. It is extremely important to have a list of all the main team members, as well as their photos and profiles on social networks, which are openly available to any potential investor. One example of ICO, which uses a successful team, is ICONOMI. The processor bitcoin-payments Cashila was created by members of this team in 2014. Their reputation helped the new ICO got more than 10 million dollars. Of course, it is complicated to attract high-level professionals to the team. However, you can gather their support or advice often this is enough to cause confidence in the audience. In addition to this, you need to avoid staff turnover before and during the campaign: this can lead to a drop in investor confidence and a decrease in the performance of your ICO.
6. How to convey to the audience the goals of the project?
The most important is to sum up clearly goals for yourself. Unrealistic or unclear goals are the main deterrent to investment. They give the impression that the team either does not know what they do or what is worse, try to betray people. Therefore, you need to create a so-called white paper, in which clearly indicates the technical aspects of the product, problems that it intends to solve, and by what means it will be achieved. In addition to this, you must have a road map, which clearly identifies definite and achievable goals and their deadlines. However, in addition to documentation, you must provide the audience with a prototype of your product. The only way to prove investors that their money will not go to the wind is this.
7. How can you protect the investors interests?
Provide discounts to investors who will contribute in the first few days of the campaign without fail. Another one actual requirement is the fund-raising of all deposits in the wallet with a collective digital signature. Based on the public keys of the participants, a collective public key is generated. The names of all keysʾ holders must be declared publicly. Some of these keys should be assigned to people who do not participate in your project, which serves as an additional guarantee for the safety of investors’ funds.
You also need to make sure that you can return funds to your depositors. There is always a chance that you will not reach the targets and will be forced to cancel the campaign.
8. What factors are important directly during the ICO?
Of course, you will want to raise money for the project as quickly as possible. However, in most cases, the ICO is limited in time, so you need to prepare yourself well. It is safe to start the campaign after you have assembled the team, determine the projectʾs goals and provide conditions for investors. It takes from two to four months.
Another important aspect is PR. You need to attract as much attention to your project as the market grows, and new ICO campaigns appear almost every day. And one more advice for you: сonstantly communicate with your audience before and during the campaign. This will help to attract more people, as well as provide feedback. The main channels of communication here are social media (Twitter and Facebook), as well as forums (Bitcointalk and Reddit). It is the best to hire a PR-manager, whose task will be monitoring and conducting a dialogue with your potential investors on these sites.
9. Are there any special tools for conducting ICO?
Yes, there are special platforms whose purpose is to facilitate the process of launching the ICO and investing in it. They work the same way as Kickstarter, which combines various crowdfunding projects and makes it easier for investors to find a suitable startup. Platform Waves is one of the largest similar platforms. This allows every blockchain-startupper to create digital tokens in some minutes and almost without cost. This currency can be used on your own exchange in Waves. This approach can save a lot of money and efforts compared to launching your own digital token, which is inevitably associated with high development costs. Of course, in this case the company controls the further development of the token less, but if this is not the company’s main product, then the compromise can save forces and resources.
10. What should I avoid when I start ICO?
Do not break the law. If you deal with other people’s money, you must constantly check whether your actions are legal. I strongly recommend you to hire a lawyer before preparing the campaign. The blockchain is not regulated by someone and is full of stories of deception, so the participants are very cautious. Any signs of potentially fraudulent activity will instantly deter the audience. It is necessary to remain open-minded and honest, keep in touch with the participants and notify them about the progress of your project.
I hope this article will be useful for you and for your future projects.