A few years ago, businesses had to run through a lot of hoops to raise capital. Startups, in particular, found it difficult to get capital because they are not already profitable. The main channels that could be used were approaching a financial institution like a bank, pooling money that the founders had saved personally or getting angel investors to offer capital in exchange for equity. These three all have their detriments and limitation.
However, new programs started being developed like Kickstarter. These programs allowed investors to fund businesses they thought had potential. Blockchain technology took this further leading to the developed tokenized crowd sales or initial coin offerings (ICOs). Essentially, this is a crowdfunding initiative where investors are rewarded with coins or tokens that will be used in the blockchain.
Since May 2017, the amount raised by ICOs has quintupled to approximately $1.4 billion. The market capitalization in the cryptocurrency industry has risen in the same vein. Unfortunately, a large number of these ICOs fail to reach their intended capital goals. Part of the reason has been the plethora of ICOs offered.
There are close to a thousand ICOs launched each year, and many of them are lost in the crowd. Startups can no longer simply launch an ICO and expect it to be successful. Instead, they need to go further to convince investors that their idea is viable. Additionally, there have been numerous fake ICOs and investors have become quite skeptical. As a result, there is greater scrutiny by cryptocurrency enthusiasts who would like to avoid being swindled by nefarious individuals. Startups with genuine business ideas now have to run a well-structured ICO campaign to reach their capital targets.
You should understand that the cryptocurrency enthusiasts are not the same run-of-the-mill investors. They are quite knowledgeable and shrewd. Your campaign should target them from the onset if you want any chance of success. These ICO investors look at four things before they consider investing in an ICO.
Uniqueness of proposition
The worst mistake you can make is coming up with a business idea that is identical to another one. This is almost bound to fail. The only way your startup will succeed is if it is offering something different from competitors or legitimately improving on a past idea. An example is how Ethereum and NXT offer a different proposition from Bitcoin. Another is how BetKing improved on a past business idea to offer an expanded range of services for customers.
The investors are first-and-foremost investing in the business. If the business holds no water, they will simply move on to the next one. You need to have a solid whitepaper that explains to investors the problem you have identified and how your business aims to solve the problem. A well-written whitepaper should convince them of the uniqueness of the proposition.
An ICO typically relies on blockchain technology. You need some form of proof of concept to convince investors that you have already started to develop the coin or platform. One of the biggest ICO failures was by Maidsafe. The ICO failed specifically because the smart contracts developed did not work as intended. Investors saw this as a problem with the proof of concept, and the ICO was able to raise only 40 percent of the required capital. Maidsafe is a good cautionary tale of the role that technology plays in an ICO.
Before launching your ICO, you need to make sure that you have an effective and working smart contract. If you are launching a coin or token, then the smart contract will suffice. However, if you want to launch a full blockchain or exchange, you should have at least an alpha version of the platform for investors to scrutinize. Bear in mind that creating a custom platform or blockchain is quite difficult. You should try using either ERC20, Ethereum classic or counterparty platform during the ICO. You can always build your preferred platform down the road.
Recently, there has been a crackdown by many governments against unregistered ICOs. Ensure that you follow the country’s regulations before launching your ICOs. In America, you need to register with the SEC to avoid fines or outright banning of your ICO. A good example is how Traffic Monsoon. All you need to do is to ensure that the legal team ensures that your ICO follows the precedents set in the security laws of the country you are targeting.
Having a proper ANN ICO marketing plan is also important. A whitepaper alone is not enough. You need to ensure that there is a buzz in the community before launching the ICO. Social media marketing plays an important role. This is not the run-of-the-mill Facebook and Twitter marketing campaign. The cryptocurrency community has its platforms, and an ICO should be marketed on these platforms.
You should ensure you create a thread on forums like Reddit, Bitcoin talk and bitcoin forum. Here the developers should be willing to answer the queries of those interested. A successful Reddit thread can create a buzz in the community about the upcoming ICO. The developers should also ensure there are enough articles on websites like coin telegraph, coindesk, and cryptocurrencytalk to offer the community additional information. This does not mean that the firm should overlook YouTube, Twitter, and Facebook. The marketing campaign should be all rounded to create the required buzz before the ICO is launched.
Running an effective ICO is still possible. However, startups need to change their tactics. The right delivery is the difference between success and failure. Furthermore, an important component is the team. Regardless of how good your campaign is, few investors are willing to fund a startup with four unknown founders. Ensure that the team has a few reputable individuals even as advisors. An example is Gnosis that sold out its $12.5 million ICO in 12 minutes because there were two Ethereum members on the board. Connections are as important as the ICO strategy used.
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