Everything you need to know about ICOs, and how they helped realise dominance of the geeks.
Jill, above, is mentioning an ICO (Initial Coin Offering).
That sounds familiar to an IPO (Initial Public Offering), right? Just in a manner where big enough companies allow the public to buy their shares by investing small to large chunks of money, an ICO allows a startup to raise funds from millions of people across the world. This saves new entrepreneurs from being dependent on a handful of angel investors or venture capitalists who might be interested in their product. The seed fund or angel investment rounds usually take a huge time for any startup. So, if the entrepreneurs are busy following the money, who is going to work on the product?
The concept of ICO was first seen in 2013 when Mastercoin (now Omni) raised US$ 500,000 over a month and showed the world of startups that a better means of raising funds, as compared to age-old angel investment, was readily available in the form of a crowdfunding model which was not only very feasible but also diminished barriers to capital for the newbies in the market. The largest ICO till date has been for Bancor, a platform designed to make it easier for users to launch their own blockchain tokens, all of which is implemented using smart contracts initially deployed on the Ethereum network. Bancor raised US$ 152.3 Mn from 10,885 investors.
I pretty much believe the above instances are sufficient for you to gain the courage to read further. ICOs are the next big thing in the world of cryptocurrencies as well as startups. And, it has become imperative to know about the entire deal as well as understand what it requires to be a part of this. We need to be able to fathom the freedom and power here. Every person can now invest in crazy and revolutionary-sounding ideas without any barriers or borders. It is all up to you and your courage — invest a dime or a million dollars, but be a part of a revolution that is spreading like wildfire.
Let us take a very direct example. Suppose a startup is building a technology that is going to allow international VOIP calls over the blockchain technology at much-reduced prices as compared to Skype or Viber. But, the startup is UK based. Now, you won’t be able to invest in the company even if it goes public, as you cannot invest in IPOs in international markets (until you follow a cumbersome path of opening a trading account with a company that in turn has an association with a foreign company issuing trading accounts, acting as an intermediary). This deprives you of supporting a team who are building tech that is going to make a currently existing technology way cheaper and far more secure. This is a huge loss for the startup as well because it is being deprived of such small-to-large tokens of appreciation to hefty investments from millions of people like you across the world just because they are not in the United Kingdom. An ICO eradicated all of these barriers and allows great products and technologies to raise funds from supporters across the worlds.
A total of 34 companies raised US$ 567.4 Mn in June 2017 alone, via ICOs. As per data and statistics, this figure is above the figure for the usual total of angel investments or seed funds that startups take at similar stages. This clearly shows that ICOs are working and have proven to be a feasible solution for startups to raise the required amount of money and launch their product.
Let us look at the Roy-Rahul example above. Roy gets a brilliant idea and starts working on a product that is going to facilitate his vision. According to Rahul, Roy would need a CEO to take his product to angel investors to raise an initial investment that is going to allow him to realise his dreams. This is exactly where the startups are still wrong. And, ICOs are changing just that. If the developer puts his heart into the development of a perfect product, he should be the one picking up investments for his product as well. And, this is enabled by a community who are able to understand technical products by reading white papers. Here’s an illustration to help you understand:
© Abhishek Bhattacharya
With the red bar I’ve shown the extent to which a pure geek is able to explain his tech product. The blue bar shows the extent to which the understanding of an average Joe goes when technical products are concerned. The grey bar depicts the figurative difference between the understanding of both the categories of people. A white paper is exactly the ingredient using which the developer can bridge the gap. This bridging, hence the white paper (and other plain English explanation sources) is what enables the developer to tap a community of ‘average person-turned-investor’. And, surprisingly, this community is free from the barriers of demographics and legalities and can be millions in numbers.
Seldom we see instances such as Facebook where a Mark gets to build the product of his dreams and also go ahead with control of its execution.
We need more people like Vitalik Buterin (the inventor of Ethereum) who are ready on their feet to build and ship great products and utilise brilliant platforms such as Ethereum for building applications based on smart contracts or a platform like Waves that allows you to issue your own tokens to carry out a managed ICO.
A Security Concern
A security concern associated with an ICO is the fact that these crowdfunding campaigns are not authorised by the government. There are no set rules and policies that govern the behaviour of a startup running an ICO, as compared to an IPO where there are boards such as the United States Securities and Exchange Commission that governs the sale of shares.
Till now, I have discussed the basic concept of an ICO. I have told you what an ICO is all about, have given some statistics about why ICO is the future of generating funds for early stage startups, and have given credible examples to support the cause.
Running a successful IPO is no easy task, and companies consume the services of huge and highly specific teams for various tasks and upkeep. Similar is the case for an ICO. An in-depth knowledge of the fields of blockchain and cryptocurrencies coupled with a dedicated team of seasoned experts is the primary requirement of hosting a successful ICO. And, we are committed toward providing state-of-the-art resources, knowledge base and consultancy to its associated startups which would help them start off their product journey with a crowdfunding campaign via an ICO constructed and set up in a foolproof manner.
So, if you’re a startup with a brand new technology product and are looking for ways to generate a hefty amount of initial funds, better would be to stop hunting down angel investors. Rather, go for an ICO. And, we would be there to help you throughout the way.
Either you’re planning to host an ICO for your startup on your own, or are looking for services from companies, there has to be a checklist everyone needs to follow to have a very successful ICO campaign.
This is the same checklist that we use to guide you through a successful ICO:
- An understanding of the product / startup stage.
It is imperative to know the stage your product is at, and to understand the status the outside world would perceive your product to be at. Nowadays, even naive ideas are trying to go for an ICO. We say, if you even have the MVP (Minimum Viable Product) ready, you’ve stepped into the perfect stage to go ahead with an ICO for your product.
In case the entire product is ready for the market, the steps would be entirely different so as to ensure maximum market reach and visibility.
2. Team
We already know how important the team behind a product is, while you approach angel investors or venture capitalists. Many times, a team forms the sole reason for a VC to go ahead with a round of funding. Having a good team, and specifically making every detail about every other team member public becomes all the more important in the case of an ICO. This is simply because people from across the world who are your potential subscribers wouldn’t get to know whether you are a real startup with a real product offering, or a fraudulent entity on a lookout to run away with their money — all of this is just because of the unavailability of a regulatory body.
So, help your supporters generate a great deal of trust toward you by giving them links to the social profiles of every member of your team so that the background and past experiences of each and every team member are open to the public.
3. Goals Ready
You need to make sure you have all your goals specified and ready. All of your goals and the vision behind them needs to be made public so that you can be held accountable for missing milestones, or diverting from your said goals. This increases the trust amongst your supporters and they know exactly what they are funding you for.
4. Investor Terms Ready
You need to clarify investor terms early on. This includes giving premiums to early bird investors and may be having an escrow wallet or any other kind of promising technological infrastructure to take care of the contributions. You also need to assure the supporters of a process to be valid for returning funds in case of a failure.
Let us take an example for understanding how to make the most of your relationship with the investors. If there are ten people who are contributing to your product early on, this implies that they are showing an interest in your product before hundreds of people have even got to know about you. This is commendable trust and needs to be rewarded. So, you might want to give some extra benefits or premiums to the early birds.
Secondly, you need to make sure that the investors understand how you are going to handle their money. What we suggest, and what we have also been seeing as a trend is to use a multi-signature escrow wallet. This enables you to allow access to the funds to people who are not involved with your startup, which guarantees safety to public money.
Lastly, you need to assure the investors about a refund process which becomes applicable in case you miss milestones or if the entire project fails.
5. White paper
A white paper is probably the most essential part in this entire topic — that is, toward a successful ICO. Since we are continuously mentioning that the entire concept of ICO is working because it enables product developers and geeks to directly tap investments, it is imperative that these geeks make the world know of the nitty gritty of the product. A white paper is a key element which has every detail — from technical to non-technical put into a document for the public. A good example is the collection of white-papers by EOS.io: https://eoscollective.org/papers/
6. The platform
We suggest you use a platform built specifically for the purpose of hosting an ICO. Such platforms work similar to Indiegogo and Kickstarter and aggregate crowdfunding campaigns for you to raise investments as well as for the general public to invest into several of those. They allow you to launch a digital token easily and quickly and at very less cost. This is way cheaper and easier than setting up and creating your own digital tokens. Such a platform also reduces the startup’s control over the token’s further development, hence decreasing chances of extreme volatility in the token’s value during the ICO.
7. Campaign
This step is quintessential. Insufficient campaigning might lead to a big fail. And, that is quite obvious as until people don’t know about your ICO, there is just no chance they’d be coming to invest in your product. Extensive use of social networks and other communities and groups is an effective way of ensuring wide visibility, in turn resulting in a massive turn up to the crowdfunding.
The above checklist is a very rough estimate of the required steps for a successful ICO. Accomplishing a successful ICO run requires very specific steps with specialised knowledge coupled with practical experience.
Some points to be noted
- You need to take complete responsibility of an ICO. Any legalities need to be dealt with at your own risk.
- While investing in an ICO, proper judgement is required to differentiate between real people with real products and fraudulent people with fake technologies or products.
- As a startup, you need to understand whether ICO is even close to being helpful to you. Your case might not require selling digital tokens to raise funds, rather might prove to be useless for you. So, deciding to go for an ICO completely depends on the business model you plan to follow, and also how selling digital tokens is related to your basic workflow.
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