Despite the market downturn, constantly declining numbers of indicators of funds raised by projects, as well as increasing skepticism about the industry, many startups still continue to think that ICO is an easy way to break into the cash flow and tear off a tasty piece of investment.
However, the current reality is quite different. Everyone understands that ICO is far from ideal, primarily due to the fact that the tokens buyer mistakenly thinks that he is a full-fledged investor and he has a voting right in the company, he owns a profit share or he has a predominant right to newly issued shares. For this reason, the American regulator (SEC) back in July last year stated in its report that some tokens can be classified as securities, so they should be regulated in the same way as traditional securities. Another ICO problem is fraudulent projects whose task is only to enrich its founders, however banal it would sound now.
That is why the industry is switching to Security Token Offering (STO). But it should be understood that STO, unlike ICO, is designed for a different audience, since only professional investors can participate in these offerings.
That is why making it so that investors not only hear about your idea but also believe in it, one 15-page White Paper with several charts is no longer enough.
In this article Vladimir Malakchi, CMO in the 482.solutions company, will consider all the necessary documents that will be needed for projects with applications for success in 2019:
White Paper: nowhere without it
White Paper — that is, where any project should begin. This is not just a file that describes your great ideas, it is not even advertising material. This is the basis on which the site, marketing strategies, and even financial plans are built.
I know several projects that believed that the White Paper is just an advertising booklet, which can be written after the landing page is ready and the profile is registered in the Telegram. But in practice, everything turned out to be more difficult, since investors perceive this document as the face of the entire project, and nobody wants to fall into it in the dirt. Thus, a series of changes followed at every stage of the ICO implementation, the deadlines shifted and, of course, the costs increased (several times). And since we are talking about raising funds from a more sophisticated public (professional investors), you should answer these three questions below.
Three questions that White Paper should answer
I advise when developing the structure of the document initially to answer them, which subsequently to get the project essence to the community and turn the reader into a potential investor.
How does this project differ from hundreds of others?
And you don’t need to write advertising slogans and replete with bright headlines. It is necessary to provide facts that prove that the technologies that will be realized thanks to the funds raised are unique, and your idea will be in demand.
The professional investor is more difficult to “hook”; he always carefully examines the projects that are somewhat similar to each other.
As far as real development plans?
If you conceived to promote the golden mountains, a lightning-awesome blockchain, and even a profit in XXX in a month — alas, forced to disappoint you. STO-investors are educated financial market players, they check every offer, and numerous experts, who cannot be fooled, help them in it. The project must be credible and reasonably implementable.
Why invest money in the project?
In fact, this question is solved automatically as soon as the investor has found the answer to Question 2. However, you should also provide information on the financial risks that may arise and what ways to exclude them from your team. For example, Escrow invitation can significantly improve your chances to attract more investors than in projects without this crypto hero.
White Paper highlights
This is the first block that describes in a few sentences the whole idea of both the project and the token or coin being issued. The Abstract usually takes about two pages and sets a goal — to interest the reader. If these two pages turn out to be uninteresting, it is unlikely that someone will read the remaining 70.
It is necessary to describe here the general situation in the industry, as well as to touch on the latest trends and problems faced by both projects and cryptocurrency holders.
But the real work begins from this point. It can be a whole large section, where you have to describe the problems that should be addressed in the priority tasks of your project. It is such inappropriate circumstances became the impetus for your idea. The bigger the problem your idea can eradicate, the greater the chance of success.
But back to Question 2. Don`t invent a fight with windmills. The problems should be as real as the methods of dealing with them. Supplement this item with not comforting statistics until you and your “brainchild” in the industry and you can safely move on to solving these major issues in the following paragraphs.
4. Project-specific section
This is the most important item with an unlimited number of sub-items where you present your project, its components and represent the solution of the problems that were described in the Background.
Here a potential investor should find such information about your project:
This item usually takes the most time, since its development involves the close cooperation of the whole team — from developers to designers.
Your task is to tell about your project using additional graphics or charts. You should not use complex technical terminology, and if you cannot avoid the profile words, take the time to put their explanations in brackets or form a separate mini-dictionary at the end of the document.
Also try as much as possible to reveal the actual use of your technology or idea. The more integrations it implies both in the online and offline world — the more it will attract attention.
5. Technical specification
I consider this point to be quite controversial, since, according to statistics based on personal experience, only about 2% of readers who understand technologies, programming languages and the intricacies of implementing blockchain products do not miss it.
In fact, this is where the entire technical background of the project with codes and formulas should be located.
Yes, there is no doubt that this section is important, but if you have an interesting technological project that requires a detailed technical description, I advise you to put this item in a separate document, which we will talk about a little later.
6. Financial model
In this section, investors should find all the information on the distribution of tokens at each stage of Token-sale. It is most convenient, after a brief text description, to place a pie chart, where you can clearly see which part of the tokens the team will get, and how much will be for sale and marketing. Do not forget that you need to specify the number of tokens provided for the reserve fund and Advisors with Escrows.
In the Financial Model, it would be also logical to place your roadmap with detailed plans for the step-by-step implementation of the project.
7. Legal compliance
This item must appear in your main document because, in order for your token to be considered a security, it must comply with all regulatory requirements.
For example, if you are going to conquer the American market, you should indicate the conformity of your token to the Howey test.
To be considered a security, a token must meet the following criteria:
To launch STO in the US, you will need to understand also:
SEC is not the only regulator that allows you to start STO. You can also consider the jurisdictions of European states (France and Switzerland), Asia (Singapore, South Korea, China, Hong Kong), the Middle East (Israel, the United Arab Emirates) and North America (Canada).
In any case, the patronage of which regulator you would not choose, it is worth carefully studying all the legal aspects of the still new fundraising tool (without professional legal support you cannot do) and describe in detail the legal compliance of your STO.
It’s time to meet your potential investors face to face. At the same time, we advise in this section to place information not only about the founders of the project, but also to introduce each team member, adding links to profiles on Linkedin. For projects that are not afraid to show their faces, and who have experience, the level of trust is always higher.
It is also worth posting in this section information about Advisors and Escrows of the project — after all, the more famous they are in the industry, the more chances to reach the hard cap.
This point is usually given little attention, but in vain, because after the last sentence, in Conclusion, the reader can be transferred to the page for participation in the pre-STO.
Here we summarize the results, recall what problems and how the project solves them, and also focus on its relevance, not forgetting to hint about the high probability of investors getting a profit. Also in this section, you can smoothly switch to the bonus system for the first participants of the STO campaign, thus turning the reader into an investor.
Technical Paper: it is read less, but more attentively
By its structure, Technical Paper is very similar to White Paper, but the content of these documents are completely different.
In essence, this is a technical reference book that should answer any technical question about your project.
We mentioned a similar point in White Paper (Technical specification), but I still advise you to collect all the technical information in a separate document.
Thus, we relieve ordinary readers of the need to meet with complex formulas and professional developers from searching for one item in the whole document.
It is worth noting that a high-quality Technical Paper takes about 50 pages, so you can make a separate document out of it at least for this reason.
It is better to entrust the development of Technical Paper to developers in collaboration with copywriters, who will help to pack all the formulas into a beautiful, textual “wrapper”.
Required components of Technical Paper:
As well as in WP, we reveal the main features of the project, but we focus only on the technological components.
2. Technical specific section
This global section should reveal the entire structure of your project, tell what technologies you will use, and most importantly, why you will use them.
3. Risks and security
I like when this item is made in the table form, for example:
Thanks to this approach, you show potential users the advantages of your system, as well as build trust between you.
In conclusion, you must draw a line and finally convince that you have intelligently chosen one protocol or another, implemented some solution, and also selected a specific programming language for your blockchain.
It is better not to post at the Technical Paper end information about joining the STO, at least as clearly as we did in White Paper.
Overview: everything on 5 pages
This document should briefly and clearly explain the essence of your project, its goals, and missions, as well as notify potential investors about the timing of the STO campaign and the details of the distribution of funds.
Required Overview Sections:
For each problem, you need to allocate only two small paragraphs, which will include a description of the problem and methods for solving it with your project.
2. Basic working mechanisms
In this section, it is better to list the entire structure of your system and briefly describe its components. We recommend developing a visual presentation on one page.
3. MVP Description
This item is optional, as, in principle, the development of MVP is not found in every project. But we already wrote above that the minimum product increases the level of investor confidence and if you have one, then take advantage of any chance to boast about it.
4. Information about Token Sale
It is necessary to provide here all the dates for the STO stages, as well as indicate the soft cap and hard cap. Moreover, you need to justify these amounts. For example, when reaching a soft cap, you will spend money on developing only one component of your system, but with a hard cap, you will be able to embody the whole idea in the specified time frame.
In Overview, it is not necessary to represent each employee, only the key persons of the company will be needed, as well as Advisors.
Don`t forget to place clickable buttons on your social networks.
One Pager: project advertising brochure
In this document you need to describe all the advantages of the project on one page:
The goal of One Pager is to familiarize potential investors with your idea in a minute and make it so that they want to get acquainted with the project in more detail.
Competitive Paper: why you and not others?
This document should show how your project differs from competitors. To do this, it is necessary to conduct a very fruitful analytical work, find out in detail how similar projects work and present yours in the best light.
Competitive Paper Structure:
The section assumes a general description of the market situation, affects the negative consequences of problems, and also tells about the objectives of this document (convey to users the benefits of your project compared to others).
2. Criteria for comparative analysis
Here you list by what criteria you compare projects. It is better to do it in a dictionary format with terms explanations.
In the table form you note your benefits, for example:
This item implies a textual description of the results. Why this or that project does not solve the specified problem, and your project will help eradicate the deficiency.
In this article, we presented the minimum package of documents that STO will need in 2019. We also tried to reveal the writing features of both White Paper and Technical Paper, Overview, One pager, Competitive Paper. All the data provided in the article are based only on successful personal experience, which we hope will help you.
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