ICO is a relatively new method of financing startups, which has become for thousands of entrepreneurs an easy and fast way to implement their projects. By 2018, the ICO collected more than $20 billion. However, an ICORating study conducted last year showed that more than half of ICO projects failed in the second quarter of 2018.
According to industry experts, the failure of ICO is often caused by typical mistakes made by tokens issuers. Some of these errors lead to simple inconveniences for ICO participants, others affect the amount of funds raised, and some of them can lead to the failure of the project as a whole. It is important for both ICO issuers and potential investors to be aware of the most popular and significant mistakes that ICO projects make.
Product Development and Blockchain Abuse
In part, the beauty of the ICO concept itself is that it allows entrepreneurs to raise funds for essentially non-existent projects. As a rule, all that the issuer needs is a good website, a decent white paper and smart contracts that will issue a token in exchange for community investments.
Such an approach can really help in financing great ideas that may be too revolutionary for venture capitalists, but in most cases, it simply opens up access to financing for projects that do not have other chances for investment. This may seem obvious, but still — it would be nice for the ICO project to have at least an alpha version of its product before it starts raising funds for its development.
The ICO issuer must prove that its idea is realizable, and the only thing that stands between the current unfinished version and the full deployment is financing. This approach allows the project to stand out from several thousand other ICOs, and thus gain the interest and trust of investors.
Another aspect to which attention should be paid is the token ecosystem that the issuer of the ICO plans to create. Simply put, if the concept works without a blockchain and/or its own cryptocurrency tokens, developers are better off developing their project without them. Only when the issuer is sure that tokenization is obligatory, should he have a clear understanding of the ecosystem he is planning to create. Roles, rights and obligations of future participants, formalized specifications of tokens and all economic relations, as well as their advantages, should be clear for both the team and potential investors.
Objectives, fee, and volatility
Another aspect that should be considered before attempting to launch an ICO is the question of how much the project wants to collect. If it is too small, then the team will not have enough money to develop and reach the break-even point. However, if the bar is too high, the community’s expectations will be proportionate, and the chances of not justifying them will be high.
In this case, the advice for ICO issuers is quite simple — consider the possibility of holding several rounds of financing with smaller amounts instead of a single large distribution of tokens. Thus, the financing schedule will be more flexible, which will allow more intelligent distribution of funds and set the appropriate expectations of investors.
Volatility is also important. Most ICOs offer tokens for an ETH that is less volatile than most altcoins, but its cost is less stable than traditional money. ICO issuers should remember that if they raise funds on the air and its price changes, the maximum and minimum fundraising amount will change accordingly.
ICO location and laws
The cryptocurrency industry is still developing in terms of technology, distribution, and regulatory framework. Relevant laws vary from jurisdiction to jurisdiction, and sometimes regulators suddenly and drastically change their position. In this regard, the choice of location for registering a company and holding an ICO is crucial. Countries such as Estonia, Switzerland, Japan, Malta, and Gibraltar are considered to be much more cryptocurrency-friendly than the United States, China or Russia.
In some cases, regulators may consider ICO to offer securities, as has been the case in the US more than once. And since an unregistered offer of securities is a crime, regulators will quickly take action against the issuer. If there is a possibility that the token will be recognized as security, before the start of the fundraising company should contact the regulator and receive confirmation from him that he will not regard the fundraising as an offer of securities. In this way, the company will be able to securely finance, and potential investors will not fear persecution by the authorities.
To resolve such legal issues, it makes sense to hire a qualified specialist who is familiar with the relevant laws of the jurisdiction where the ICO will be held. Investors should also pay attention to this issue and give preference to projects that work in compliance with the law.
Project Promotion
Competent presentation of the project is vital for startups who want to receive venture financing. However, for companies that decide on ICO, the presentation materials are even more important. At the same time, a PR campaign should be clear and accessible to people with different levels of technical and economic knowledge. That is why all the materials about the project — the White Paper, the website, and the roadmap should be comprehensive, but understandable to a wide audience of potential investors.
The objectives of the project and the specifications of the tokens should be indicated on the website — important figures should immediately be evident. Many people quickly look through the first page, and often either leave the project site if they are interested in anything or invest by skipping important information and then make a complaint to issuers. Also, developers should record a video message, which will be briefly and clearly outlined the benefits of the project.
If the ICO involves investors from different countries, it makes sense to translate the website and the White Paper into all major languages: English, Chinese, Russian, German, French and Spanish. In addition, one of the signs that the ICO is not a fraud is the availability of detailed information about all the project participants, mentioning their experience and achievements.
Community and Feedback
Finally, one of the main components of a successful ICO is an active community of users who want to support the project and use the product/service launch field. From the very first day of ICO preparation, the issuer needs to communicate with future investors through such forums as Bitcointalk and Reddit, social networks — Facebook, Twitter and Telegram, and such platforms as Medium or Steemit.
In addition, there are projects specifically designed to collect opinions that are very useful for evaluating ICO. Augur, Gnosis, and Wings are forecasting markets, where the issuer of the ICO can receive funding forecasts and constructive feedback on many blockchain projects. At the same time, Augur and Gnosis are common forecasting markets, and Wings focuses solely on ICO evaluation. It is noteworthy that, unlike forums and social networks, forecasting markets give people a real financial incentive to share only the best guesses and estimates: each participant reinforces his assumptions with a bet, be it money or tokens, and the best forecasters receive rewards.
ICO issuers should start presenting their project to potential investors and users as soon as possible. Thus, a startup will be able to collect feedback and find out whether the market really needs the product. To track community feedback, it’s worth hiring the right people, as developers often don’t have time for such processes due to active work on the product.
Having a successful ICO is not as easy as it sounds. From the point of view of both investors and issuers, there are many nuances and aspects that must be taken into account, and well-established communication is crucial. ICO issuers should work with opinion leaders and reviewers, and be honest with investors, both in terms of the advantages and disadvantages of the project.
Summarizing, we can say that the main conclusion is simple: it makes no sense to make ICO just for the sake of money. There have already been enough such projects in the industry and in today’s realities, only those companies that can really offer something useful will survive.
According to industry experts, the failure of ICO is often caused by typical mistakes made by tokens issuers. Some of these errors lead to simple inconveniences for ICO participants, others affect the amount of funds raised, and some of them can lead to the failure of the project as a whole. It is important for both ICO issuers and potential investors to be aware of the most popular and significant mistakes that ICO projects make.
Product Development and Blockchain Abuse
In part, the beauty of the ICO concept itself is that it allows entrepreneurs to raise funds for essentially non-existent projects. As a rule, all that the issuer needs is a good website, a decent white paper and smart contracts that will issue a token in exchange for community investments.
Such an approach can really help in financing great ideas that may be too revolutionary for venture capitalists, but in most cases, it simply opens up access to financing for projects that do not have other chances for investment. This may seem obvious, but still — it would be nice for the ICO project to have at least an alpha version of its product before it starts raising funds for its development.
The ICO issuer must prove that its idea is realizable, and the only thing that stands between the current unfinished version and the full deployment is financing. This approach allows the project to stand out from several thousand other ICOs, and thus gain the interest and trust of investors.
Another aspect to which attention should be paid is the token ecosystem that the issuer of the ICO plans to create. Simply put, if the concept works without a blockchain and/or its own cryptocurrency tokens, developers are better off developing their project without them. Only when the issuer is sure that tokenization is obligatory, should he have a clear understanding of the ecosystem he is planning to create. Roles, rights and obligations of future participants, formalized specifications of tokens and all economic relations, as well as their advantages, should be clear for both the team and potential investors.
Objectives, fee, and volatility
Another aspect that should be considered before attempting to launch an ICO is the question of how much the project wants to collect. If it is too small, then the team will not have enough money to develop and reach the break-even point. However, if the bar is too high, the community’s expectations will be proportionate, and the chances of not justifying them will be high.
In this case, the advice for ICO issuers is quite simple — consider the possibility of holding several rounds of financing with smaller amounts instead of a single large distribution of tokens. Thus, the financing schedule will be more flexible, which will allow more intelligent distribution of funds and set the appropriate expectations of investors.
Volatility is also important. Most ICOs offer tokens for an ETH that is less volatile than most altcoins, but its cost is less stable than traditional money. ICO issuers should remember that if they raise funds on the air and its price changes, the maximum and minimum fundraising amount will change accordingly.
ICO location and laws
The cryptocurrency industry is still developing in terms of technology, distribution, and regulatory framework. Relevant laws vary from jurisdiction to jurisdiction, and sometimes regulators suddenly and drastically change their position. In this regard, the choice of location for registering a company and holding an ICO is crucial. Countries such as Estonia, Switzerland, Japan, Malta, and Gibraltar are considered to be much more cryptocurrency-friendly than the United States, China or Russia.
In some cases, regulators may consider ICO to offer securities, as has been the case in the US more than once. And since an unregistered offer of securities is a crime, regulators will quickly take action against the issuer. If there is a possibility that the token will be recognized as security, before the start of the fundraising company should contact the regulator and receive confirmation from him that he will not regard the fundraising as an offer of securities. In this way, the company will be able to securely finance, and potential investors will not fear persecution by the authorities.
To resolve such legal issues, it makes sense to hire a qualified specialist who is familiar with the relevant laws of the jurisdiction where the ICO will be held. Investors should also pay attention to this issue and give preference to projects that work in compliance with the law.
Project Promotion
Competent presentation of the project is vital for startups who want to receive venture financing. However, for companies that decide on ICO, the presentation materials are even more important. At the same time, a PR campaign should be clear and accessible to people with different levels of technical and economic knowledge. That is why all the materials about the project — the White Paper, the website, and the roadmap should be comprehensive, but understandable to a wide audience of potential investors.
The objectives of the project and the specifications of the tokens should be indicated on the website — important figures should immediately be evident. Many people quickly look through the first page, and often either leave the project site if they are interested in anything or invest by skipping important information and then make a complaint to issuers. Also, developers should record a video message, which will be briefly and clearly outlined the benefits of the project.
If the ICO involves investors from different countries, it makes sense to translate the website and the White Paper into all major languages: English, Chinese, Russian, German, French and Spanish. In addition, one of the signs that the ICO is not a fraud is the availability of detailed information about all the project participants, mentioning their experience and achievements.
Community and Feedback
Finally, one of the main components of a successful ICO is an active community of users who want to support the project and use the product/service launch field. From the very first day of ICO preparation, the issuer needs to communicate with future investors through such forums as Bitcointalk and Reddit, social networks — Facebook, Twitter and Telegram, and such platforms as Medium or Steemit.
In addition, there are projects specifically designed to collect opinions that are very useful for evaluating ICO. Augur, Gnosis, and Wings are forecasting markets, where the issuer of the ICO can receive funding forecasts and constructive feedback on many blockchain projects. At the same time, Augur and Gnosis are common forecasting markets, and Wings focuses solely on ICO evaluation. It is noteworthy that, unlike forums and social networks, forecasting markets give people a real financial incentive to share only the best guesses and estimates: each participant reinforces his assumptions with a bet, be it money or tokens, and the best forecasters receive rewards.
ICO issuers should start presenting their project to potential investors and users as soon as possible. Thus, a startup will be able to collect feedback and find out whether the market really needs the product. To track community feedback, it’s worth hiring the right people, as developers often don’t have time for such processes due to active work on the product.
Having a successful ICO is not as easy as it sounds. From the point of view of both investors and issuers, there are many nuances and aspects that must be taken into account, and well-established communication is crucial. ICO issuers should work with opinion leaders and reviewers, and be honest with investors, both in terms of the advantages and disadvantages of the project.
Summarizing, we can say that the main conclusion is simple: it makes no sense to make ICO just for the sake of money. There have already been enough such projects in the industry and in today’s realities, only those companies that can really offer something useful will survive.
