Launching an ICO in 2019

In late 2017 crypto markets were reaching all time highs and many envisioned crypto as the new gold. Now, in late 2018, those markets have reached year long lows and the same ones forecast the demise of crypto.

Yesterday’s the past, tomorrow’s the future, but today is a gift. That’s why it’s called the present. — Bill Keane

Through all these crypto craze, ICOs remained as new finance instruments. If you’re an entrepreneur launching a new business you should consider an ICO along traditional funding sources such as Angel Investors or Venture Capital. The ICO landscape looks different from a year ago. And it’s not worse, it’s definitely different, and actually better on many levels. It’s now an ecosystem where value creators can have a say, and where scammers are no longer welcome.

As a Blockchain Consultant and ICO Advisor, these are my observations.

Last year’s easy money is mostly gone by now

There is a big part of the crypto market that is driven by the fast money making possibilities that result from the volatility. These guys pumped and dumped tokens for profit while the markets were going up. Then they pumped and dumped tokens for a loss when the markets went down. After being burnt by this long bearish market, a lot of retail investors disappeared and are now sitting on the sidewalks of crypto markets. I personally don’t see these retail investors coming back anytime soon. A lot more confidence needs to build up before they feel comfortable enough to invest again.

A witty story with no substance is not enough anymore

A year ago, the typical ICO would craft a stunning website, a well written white paper, draw some people known from the community as advisors, and that was it. They would raise an enormous amount of money just on those assets. They didn’t need to build a product, any type of consumer traction, or even a credible roadmap spanning a few years. Investors back then didn’t care about the long term. The markets were going up really fast and any new token just needed to have a credible story to reach the soft cap, and a credible roadmap for the next few months to reach a public crypto exchange, where tokens could be traded in the free market. The retail investors would then invest in the ICO (or event pre-ICO at a discount), and just wait a few months before trading their tokens back for a nice profit in the exchange.

Scams are mostly over

One of the key things last year, that drove a lot of the smart money away from the ICO market, was the number of scams as a percentage of the total ICO market. There was a lot of money to be made very easily and people with dubious morals took advantage. Regulation was not really there yet and everyone got into the pump and dump craze. Many projects with the sole purpose of attracting enough investors to secure the soft cap and by reaching that threshold the project promoters would secure for themselves a portion of the ICO tokens. As soon as the tokens became available on a public exchange both the ICO promoters and investors would sell their portfolios for a nice profit to clueless retail investors buying them in a craze, thinking the token value would appreciate to dizzying heights. Some tokens indeed appreciated tens and hundreds of times their ICO value without the slightest intention of ever creating any value out of the proceedings, only to come crashing down as reality sunk in.

There’s a lot of enterprise money, though

The general public went crazy in 2017, with the crypto markets and blockchain regularly making headlines in mass media channels. At some point the interest in crypto started making its way into boardrooms and industry events and just like that, the enterprise world started to see big budgets getting approved left and right for blockchain initiatives. Depending on the risk appetite, these initiatives now range from internal Proof of Concepts to public ICOs backed by enterprises. The enterprise ICOs being launched now are mostly pitching business angels, venture capital funds, venture arms of big companies, and even innovation labs. A whole new funding ecosystem has emerged from the hashes of last year’s craze, and this is arguably smarter money than before. The traditional sources of money for startups, are now backing ICOs too.

Due diligence has come to stay, in ICO world

Raising money for an ICO nowadays is more similar to raising money for a traditional startup. As ICO promoters pitch to enterprise minded stakeholders, their story and materials need to follow through. Investors ask for the same kind of things they have asked startups for a long time. White papers are good, but now they need to come with a credible go to market strategy and a credible roadmap for the coming years. An ambitious product idea is good, but needs to come with a Minimum Viable Product or Proof of Concept that showcases the fundamental functionalities. A rockstar team is good, but just posing their Linkedin profile on a white paper is not enough anymore, they need to be actually involved. This sounds crazy for the enterprise people reading this, but yes, there was a time when no due diligence was made whatsoever, and that is why the bubble popped.

Regulation has come for good

Regulators woke up for this new asset class during last year. With such high amounts of money being traded regulation authorities felt compelled to step in and embrace the new markets. As such, KYC (Know Your Customer) and AML (Anti Money Laundering) processes have evolved in the crypto world and are now similar to what is required from banking institutions. The regulations around the ICOs themselves are tighter as well, with tokens being now segregated into Securities, Utilities, or other instruments, depending on their purpose and the geo where the ICO is executed. An ICO now needs to do a careful due diligence about which geos are more favourable to them and what are the legal and tax implications of some core mechanics of their token economy.

A whole new set of possibilities

A year ago all ICOs would be public. The tokens would be listed on the public Ethereum ledger and the vast majority of the tokens would be sold to the crowd. Nowadays is the other way around. Even if most ICOs still happen on the public Ethereum ledger (or EOS, or Stellar, for that matter), the majority of the tokens are now sold to private investors. Most of the ICOs that I have been involved with lately try to reach the soft cap during the private sale, as there is no confidence in the crowd sale anymore. Another interesting trend is ICOs where all the tokens are sold to private investors, and in this case most of them aren’t listed on public ledgers and have no ambitions to ever have their token listed on a public crypto exchange either. Most of these ICOs happen within some form of industry consortium, and launch their token as a means to execute transactions between the consortium participants.

Conclusion

The ICO market in late 2018 is better than it was in late 2017, and I believe it will get better through 2019, with both enterprise and crowd money getting smarter. Startup Founders and ICO promoters need to adapt, create a credible story, a convincing product, and pitch it to the right stakeholders to secure the funding they need.

As a Blockchain CTO and ICO Advisor myself, and Blockchain Architects and Engineers at TechHQ, we focus on helping our clients to create sustainable value, rather than just a lure for fast money. Creating great products is one of the most exciting things that can be done in this life, we really enjoy it.

This article was originally published here.