ICOs, don’t bite off more than you can chew by@denispetrovcic
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ICOs, don’t bite off more than you can chew

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Denis Petrovcic
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This blog post outlines some critical problems of ICOs, and also provides tools and research data to hopefully help kickstart a wider use of the proposed multi-series token sale model. Please direct any questions or interest to contribute in defining a proper framework at [email protected]

With more and more token crowdsales taking place each day, the industry is starting to evaluate alternative token sale models opposed to the currently acclaimed single-stage ICO. The problem is not raising big numbers, but raising more than one can chew.


“Greed isn’t about getting lots of money, it’s about getting lots of money without working hard to show you’re capable of spending it wisely.” — Vitalik Buterin

The godfather of ICOs

I am sure not many have seen this video from the 2013 San Jose Bitcoin conference where one of the panelists explains the crazy idea of offering tokens in exchange for project contributions.


The godfather of the initial coin offering J.R. Willett had first presented his thoughts on the Bitcoin Talk forum back in January 2012, when he published a white paper titled, “MasterCoin Specification (AKA The Second Bitcoin Whitepaper)”. Little did he know it would be five long years before the idea would lead to Ethereum and the current craze, with $2 billion raised in just the first nine months of 2017, leaving VCs and regulators in distress about the future.

The single-round sale model

New businesses that are still in the startup stage need funding to get off the ground, but rarely do they become profitable without additional funding at later growth stages. Raising funds as you build has always been the norm — as long as you’re great at creating something of value, there should be investors interested in your product, right? With the emergence of ICOs, however, startups have become fixated on the idea that they need to raise it all at once trough a single monolithic funding round — the ICO.

How does a startup, that has only a conceptual idea, know how much they need to make it all happen? Don’t get me wrong, I am not against raising money to create a better world, but it seems unlikely any change will happen when projects raise funds irresponsibly.

Even Vitalik Buterin analyses various token sale approaches and openly questions the single-round ICO in a blog post from June 2017.

“In a single-round sale, the developers have only one chance to get money to build the project, and that is near the start of the development process. There is no feedback mechanism where teams are first given a small amount of money to prove themselves, and then given access to more and more capital over time as they prove themselves to be reliable and successful. During the sale, there is comparatively little information to filter between good development teams and bad ones, and once the sale is completed, the incentive to developers to keep working is relatively low compared to traditional companies.” -Vitalik Buterin

Only time will tell how many of the recent ICOs will fail and how many will deliver, but the problem of raising it all at once is clear — the industry needs to redefine its standards and implement funding models that give teams and investors leeway for gradual evaluation. But firstly, a project considering or doing an ICO should understand how much runway it needs to get to the next stage.


How much runway do teams actually need?

In the startup world, runway is how long your company can survive if your income and expenses stay constant. If you raise too little money, you won’t have enough runway to do anything meaningful. If you raise too much, you’re wasting resources (equity).

Having 2 or even 3 years of projected expenses in the bank may be thought as an asset, but in most cases it is actually a liability. The more time you have, the less pressure there is to perform. You can spend months or even years being a perfectionist instead of releasing what you have and seeing if people want to use it.

If you raise too little money, you won’t have enough runway to do anything meaningful. If you raise too much, you’re wasting resources (equity).

There are numerous examples of companies spending years working on beautifully constructed software architectures only to find out that there were no customers for the products they were building or that the competition moved faster.

So, can the VC and startup world offer us a solution? One with a proven track record perhaps?

Tradition + innovation = ❤

Much like in sports teams, a startup with a superstar lineup doesn’t guarantee success. Having an amazing business concept doesn’t guarantee success. Raising a lot of funding doesn’t guarantee success. In fact, there have been numerous very well-funded startup companies that ultimately failed. Reasons for failure are varied. But a few common threads do emerge, such as an inability to generate sustainable revenue, bad product-market fit, losing to competitors, and (of course) simply running out of money.

It takes focus, devotion, perseverance, timing and a bit of luck to build a great company. Just like many first time founders have managed to deliver, many experienced teams have failed. Every entrepreneur doing an ICO (and investors putting money in it), has to accept that it is likely that the project won’t deliver anything meaningful on the long run. Yes, the odds are quite low, as nine out of 10 startups fail.

Angel investors and VCs traditionally fund new companies in multiple rounds. They offer initial seed capital to let the team prove its concept, develop a working prototype, validate the market, and only after they show the capability, they’re able to raise more funds to grow and establish the business further. This way the building and funding iteration keeps all involved parties motivated to achieve and deliver on promises made.

Taking your funding goals slowly trough mulitple funding rounds will help long term projects stand out, incentivise teams to keep pushing and earn their next funding round. Last but not least, it will send a clear message to the interested community that the team is focused on delivering. Besides, if the startup fails, closing shop will be less painful.

I strongly believe a step by step fundraising approach can start a new chapter in ICOs, provide growth evaluation mechanics for investors and diminish chances for scammers to run away with a big pile of $$$.


Stefano Bernardi

The multi-series token sale

When the ICO industry evolves to a multi-series token sale model, the mechanisms behind investment decision-making are going to change and become somewhat similar to how traditional startup investors reason today. It is also important to understand that putting money into an ICO is effectively buying a product before it is created.


If the developers of the product really believe their protocol or platform is going to bring value, why sell it all at a discounted price? Why not sell just a small portion at first and hold on to the rest? Perhaps plan 3–4 coin offerings, 1 each 6–12 months? The project could get additional funding by selling tokens at a higher price when the startup starts getting traction, right? It makes more sense to sell it bit-by-bit, as the product gets developed, then put your great product on sale before you even make it. Does it? LET’S PUT THE DATA WHERE OUR MOUTH IS.

To better understand how a multi-series model would work within the blockchain and cryptocurrency ecosystem, we analyzed past crowdsales of 75+ ICOs like Augur, Bancor, ICONOMI, Basic Attention Token, Golem Project, Luis Cuende’s Aragon, Cofound.it, Status, Melon, TaaS to name a few. Then we compared their actual results to a simulated alternative, where each project would seek funding through 4 token sale stages from ‘presale’, ‘Series A’, ‘Series B’ to ‘Series C’. The token crowdsale events are set in 6-month intervals, even though realistically the crowdsales could be spread to anything from 3–18 months. To simplify this vast analysis, we set each token sale event to distribute 10% of the total supply to participants of each token sale series, effectively leaving 60% of tokens for future distributions, project development team incentives, bounties etc. THE SPREADSHEET WITH COLLECTED DATA AND SIMULATION RESULTS CAN BE FOUND HERE.

The objective of the simulation is to gain a deeper understanding of the possible impact on financial outcomes that adopting the proposed multi-series token sale model may have had for past single-stage ICOs. Please bear in mind, that the available historical data is far too short to run a more reliable simulation. This is only a simplified model and no certainty that any of the provided outcomes would ever come true.


To conduct the simulation, certain assumptions and considerations had to be made:

  • 10% of the total token supply is distributed during each token sale round,
  • token sale rounds should secure a ‘sane’ amount of funding needed to develop the startup further. Typical investment rounds from the USA were used and the following averages were achieved:◊ presale → average 1M USD / project◊ Series A → average 5M USD / project◊ Series B → average 19M USD / project◊ Series C → average 35M USD / project◊ Future series token sale targets have not been defined

  • for simulation purposes, the token sale rounds are set 6 months apart but could be anything from 3–18 months, depending on a startup’s burn rate,
  • presales attract investors willing to take higher risks to obtain possibly higher returns
  • a discount on the market price needs to be given at each token sale round


It is important to note, that 2017 saw the price of ETH skyrocketing and many startups benefited more from this fact alone than from the actual value they’ve been creating. In a world where ETH does not grow 30–35x per annum, it’s more likely the multi-series token sale model will bring better results for upcoming startups.

In our analysis, we discovered that on average a project could raise about 60M USD in 4 token sale rounds, which is 4-5x compared to the 13M USD average raised by those same companies using a single token sale approach. We say could, because it is up to the project to deliver on promises made in order to achieve this.

Supporting this forecast is our simulation of ICOs. Only those raising funds before ETH surpassed the 100 USD mark benefited from the single-stage approach as they accumulated enourmous amounts of ETH. Projecst raising after that point would be better off opting for the multi-series model. The simulation shows us that each project could raise much more while still holding on to 60% of their total supply of tokens, a huge potential when considering future funding rounds.

Holding on to your own token as a store of value rather then ETH implies you believe in what you do. If a project team prefers ETH, than perhaps they don’t consider their tokens valuable?

Multi-series token sale mechanics


Each new project will be looking for anything from 10 to 100 investors for its pre sale that will serve as a seed round compared to traditional funding. Depending on the project, we can expect amounts up to 1M USD to be raised here. As these are fresh projects with little to no traction, investors will need to do thorough due diligence that might involve a more direct contact with the team. On the upside, the discounts on their investment and potential for expected profits will be largest for those investing at this stage. To protect investors participating in this round from market volatility, a token lock-down period needs to be set in place up until the end of the next token crowdsale event.

Series A

3–6 months after a successful presale, the team will already have something to show, an MVP or perhaps a working alpha release and some sort of traction. These will reassure the interested public that the team is behind the project, meeting deadlines and achieving set goals. All the good stories around the project help attract a much wider audience even without an aggressive marketing campaign with ads and banners. The investors did their job in the presale round, confirmed their evaluation and the new wave of investors may pour their funds in the Series A token crowd sale. Anything from 2 to 15M USD to be raised in these rounds with a better distribution of contributors than in the current single-stage coin offerings. Investment risk at this level will still be high, but much lower than in the presale stage. Right after the successful Series A token crowd sale, the token needs to become unlocked and ready to become listed on public exchanges.

Series B, C, D…

Depending on the growth speed of the startup, a new token sale may take place sometime between 3–18 months after the Series A. This fresh injection of capital will be used to distribute the official release, expand the team and start winning over the market. The announcement of the Series B and any sub-sequential token crowdsales must be planned in advance and market experts should be consulted to set the appropriate timing and analyze previous token price fluctuations. The tokens need to be sold at a slightly (3–7%) discounted price compared to the market price. This action should create a buy opportunity for new buyers and not concern long term holders. The new influx of capital will most likely produce even more demand for the issued token and raise brand awareness. The goal is to keep the ball rolling and the token to appreciate in value. The best teams will make sure to make long-term token holders happy with a stable token price appreciation by delivering a valuable product.

The multi-series token sale calculator (bonus)

This calculator is meant for teams considering a multi-series token sale. It can also help you allocate tokens to your team members.

It’s a google spreadsheet you can download or save in your google drive and adapt to your liking. And it’s free!



I strongly believe having a monolithic ICO round will kill most startups. Some will need to turn to VCs when they run out of runway, others will fall under the pressure of too big funding. Only the best will succeed, overcome the pressures and nail the right funding amount in their ICO.

At Blocksquare we decided to follow our proposed multi-series model to raise funding as we grow and not all at once. Our presale will launch shortly after the IBREA Annual Conference in NY (10th October). The proceeds will be used to conduct a proper pilot project and develop a working alpha before announcing our series A token sale in Q1 2018.

If you got at least 0.00000001 Bitcoin worth of value from this post please “Clap” below so others will see the post.


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