Are you planning to launch an ICO?
Launching an Initial Coin Offering (ICO) has become a hype in 2017. But what you really need to know to launch an ICO?
Every day, about 200 projects compete for ICO investors’ money. The minimum cost of raising funds with an ICO is $100–500k. Of this amount, more than $50k is spent on legal support.
Ernst & Young, one of the Big Four audit firms, has released a report titled “EY research: initial coin offerings (ICOs)”. Ernst & Young concludes that fewer and fewer projects hit fundraising goals: in November 2017, fewer than 25% hit goals, compared to more than 90% in June.
While we have quite a bit of experience, we set out to talk to top ICO investors, entrepreneurs, and enthusiasts to bring you this guide on how to launch an ICO.
Let’s dive right in.
What is an ICO and how does it work?
An Initial Coin Offering, sometimes referred to as a crowdsale, is a tool for start-ups to fund their projects by offering part of their cryptocurrency for sale to investors in advance. In exchange for financing the project, investors receive digital tokens at a very low purchase price. The investors expect the value of the acquired tokens to skyrocket over time, with the option to sell the tokens on online exchanges at a higher price.
Usually, an ICO takes place in the early stages of a project. The funds collected during an ICO are most likely used to finance the final stages of development, marketing, or to support the development of long-term projects.
Here’s how ICOs work. Let’s imagine that a blockchain start-up creates a new product based on a private or public blockchain. The start-up determines the value of the product and money it needs to raise to build and scale its idea, but this value doesn’t remain fixed and changes according to the dynamics of the market.
Do you really need an ICO?
Please consider the following risks by launching an ICO:
- You may think you’ve created a utility token, but it turns out to be a security and is sold to a US citizen, and you will have to plead your case in court.
- ICOs are now in the gray zone, and the legal status of cryptocurrency varies from country to country. It is still undefined or changing in many countries.
- If you raise investment for, say, “Round A,” up to $10 million, but you need more money, how will traditional investors evaluate your business in Round B? You probably will have to raise money for the next round using an ICO again.
- Does your project have to be on blockchain? Will it be used by a large community?
How to Orchestrate a Kickass ICO Campaign
ICOs are very demanding, and you’ll need to prepare a full set of tactics before actually launching your campaign. Following are the most important elements of any ICO strategy.
Create an idea
First, determine an idea for a future start-up and decide whether the idea alone will be enough to attract users. To hold the target audience in hand, review the market and analyze the experience of successful ICOs.
Create a brief description of the project and post it on a thematic forum. Usually, replies from users come instantly. Users discuss the idea, ask related questions, and make suggestions related to your start-up.
If users don’t accept the proposed idea, you might have to change the initial concept. When the response is positive, improve the project by taking into account feedback and suggestions, and you will get an optimized business model and a public offer for the users.
Develop an MVP
In 2017, many projects raised funds even without MVP. In 2018, however, you better have an MVP, otherwise you will have fewer opportunities to raise funds.
According to Bitcoin.com survey, Tokendata, one of the more comprehensive ICO trackers, lists 902 crowdsales that took place last year. Of these, 142 failed at the funding stage, and an additional 276 have since failed, either because they took the money and ran or slowly faded into obscurity. This means that 46% of last year’s ICOs have already failed.
Additionally, be sure you are able to provide what you promise. Oftentimes, people overpromise and underdeliver. That supports the overall perception of the crypto-world by outsiders. There should be more successful examples of blockchain usage.
Crowdsale Pricing Strategy
An ICO pricing strategy depends on your goals and growth expectations. There are four basic pricing methods:
In this method, the ICO is divided into several stages. A price is fixed per token in the first stage. As more investors come in, the price increases into the next stages. The earliest investors receive the best price per token.
Price decreases over time
The ICO token sale starts at the highest price set by the ICO team. As the time of the auction passes, the price decreases.
Fixed price per token
In this method, tokens are issued at a fixed exchange rate. This method allows people to buy as many tokens as they wish without affecting the price. Once the crowdsale ends, the tokens are frozen for a predefined period. After a cooling off period, the tokens are available for trading on the market.
Random price per token
In this method, the start-up decides not to distribute tokens at a fixed exchange rate. It receives funds from investors, conducts a token sale, and distributes tokens to investors as per their funds.
It’s important to understand the terms and conditions of the ICO. How many tokens will be issued for circulation? What will the pricing mechanism be?
Build a team
By gathering a group of highly skilled individuals, you will increase the odds of not only making a breakthrough but also convincing investors that your product is reliable.
You are going to want to have an exceptional business person, an experienced technologist, and a capable financial person, preferably someone who has been in the cryptocurrency industry for a while. Make information about your team members readily available. You should include profiles and resumes of team members on your website, emphasizing their former projects.
The number of team members can also be a deciding factor in the rating: an optimal team consists of 20 persons. Make sure that all members have a good knowledge of English, the main language of the ICO.
Release notes answering the questions investors are most interested in when researching the project’s team before investing in the ICO.
- Can the management team implement the solution?
- How do their previous experiences prepare them for the current role?
- Why are they qualified to implement this particular solution and deliver it to market?
- What is missing from the team?
- How are the advisors involved in the project?
Choose advisors for your ICO
When preparing for an ICO launching, the role of advisors cannot be overstated. Usually, advisors are experts in cryptocurrencies and the blockchain field, who are well-known within the community. Such people possess experience and have their own follower base. Their opinions are valued by the community.
When looking at the advisory board, you should:
- Google the advisors and check their LinkedIn profiles.
- Check the companies for which the advisors currently work.
- Find out how many times the advisors have advised ICOs in the past.
- Consider whether the advisory board makes sense.
You will most likely have to offer some amount of equity to advisors, so before approaching any candidates on your list, determine how much you are willing to give.
Choose a Platform
One of the main issues that ICOs have to deal with is the choice of platform for the initial coin offering.
There are three options:
- Release own blockchain
- New platforms like Waves, EOS, Counterparty, BitShares, etc. that have made token distribution easy for anyone. However, this also means that those platforms are crowded with many various tokens, making it harder to find good investment opportunities.
- Ethereum still remains the absolute leader. Ethereum is the first platform for creating decentralized online services on blockchain using smart contracts.
Register as many “projectName” domains
When you start promoting your ICO, many fraud sites pretending to be you and stealing money from backers will appear.
Buy .com .net .org .info .biz .io .pro national domains, etc. to help prevent this from happening.
Establish a legal entity
Once your staff is assembled, you need to register your company and learn about the legal mechanisms for the investors’ protection. In that way, you can increase your credibility in the eyes of investors.
To avoid issues with the law, register the company in a country with friendly blockchain jurisdiction: Cyprus, Great Britain, Switzerland, Estonia, Singapore, or BVI (as Telegram did).
Also, pay close attention to Belarus—a crypto newcomer this year. The president of Belarus, Alexander Lukashenko, signed a decree that legalizes cryptocurrencies, initial coin offerings (ICOs), and smart contracts. All crypto transactions and related income, including mining, will be tax-free for five years until 2022.
Legal risks an ICO might pose:
- Breach of laws that are in place in the relevant jurisdictions.
- Non-payment of taxes.
To mitigate risks, study the chosen jurisdiction carefully and identify the level of risk you are taking in this country.
Develop a white paper, OnePager, and a website for your ICO
A white paper is an official document informing the user about the new technology, methodology, product, or service being launched. White papers of key cryptocurrencies resemble academic articles in terms of their structure. They often contain the following sections:
- Background—what you started with
- Introduction—Description of the market and the blockchain presence on it
- Market Analysis—Deep analysis of the market, the potential growth, and existing competitors
- Introduction of the product—any product, service, or project you are offering
- Product specific section—a more detailed description of the product, with graphs, tables, and calculations.
- Technical—a more detailed description of the technical aspects of the product
- Use cases—practical usage of the product
- The pre-ICO—whether fundraising was done
- Roadmap of development—what needs to be done and the anticipated timeframe
- Financial projections—how available investment funds will be spent
- Team—management, key persons, and their experience
- Conclusion—Summary, resume
- FAQ—a published collection of all possible questions
It’s a good sign if the white paper contains some examples of the code or links to a repository. The more technical details you provide, the better.
A good practice is to produce step-by-step tutorials on actions that might be difficult to understand. For example, a personal account management, transfer with various types of wallets or the tokens raising after the release. This will not only be content for your social channels but also information for the users’ convenience.
Nowadays, the landing page has become the most popular website structure, as it’s convenient for reference. During the sales launch, thousands of users will visit your site concurrently. Please note that the likelihood of DDoS attacks increases especially during launch, so it might be a good idea to ensure proper protection in advance.
- Subscription form
- ICO description
- Team: high-quality photos, short descriptions, links to social networks
- Product description
- Case studies
- Terms, white paper
- Contacts and social channels
As soon as possible, translate your community into different languages to make the content more accessible to a global audience. You can do your own translation or use bounty campaigns. The most in-demand languages are Chinese, Japanese, Korean, Russian, German, and French. It’s desirable to translate the whole site, but the white paper can be partially translated.
Record your interviews and presentations and upload these to your YouTube channel. Video content is a much better way to engage an audience. It is perfect to convey your message and display your image and the people behind the project.
We suggest using both motion graphics and live video. It will definitely map a clearer path from the problem to the solution and help you build trust among investors by letting them hear from the people behind the product.
To get started with smart contracts, you can check out our smart contract case study and templates below. Ethereum and solidity documentation have simple contracts, while IBM offers more advanced templates.
If you need a smart contract for you ICO, drop us a line.
Describe the conditions for investors
Determine the start and end dates of the ICO. We advise you to avoid hardcoding these dates in the smart contract. Of course, there are schedules to keep, but you might find yourself in a tricky situation if you do not leave yourself some flexibility to adapt to unforeseen circumstances. Other points you might want to clarify are:
- What types of currencies are accepted?
- Is there a working product?
- Do you have a project roadmap?
- What will be the tokens be based upon? Ninety-five percent of all ICOs today have their roots in the Ethereum blockchain.
Protect Your Investors
Potential investors are not willing to take on too much risk, so you have to protect them using precautionary systems:
- Discounts: Early investors should always get some sort of discount or benefit.
- Escrow wallet: This is a multi-signature digital wallet that displays the names of all key holders.
- Fund return: There is no way to be 100% sure about ICO success, and you’ll have to provide a mechanism to return funds to campaign supporters.
- Validate your smart contract.
- Perform security checks of the whole system.
ICO is a honey-pot for scammers and hackers. Here is a list of typical ICO attacks:
- Domain name phishing
- Site breach for wallet replacement
- Stealing users’ personal data (in case of KYC/AML in place)
- Stealing money from the smart contract
- DDOS attack
- Telegram/Slack channel phishing
- Email phishing
Below are essential security tips that will help you avoid becoming a hacking statistic:
- Lock your crypto. Use a diverse array of cold storage options and lock them up in a vault.
- Educate your team on cybersecurity risks before the ICO. Don’t expect your team to understand cybersecurity.
- When the pre-sale starts, provide funding instructions only to those who sign up. Displaying the funding instructions on your website invites hackers to attack your site.
- Use different passwords for important accounts so that even if one of your accounts gets hacked, the rest are safe. Realize two-factor authentication (2FA) wherever possible as well.
- For crucial infrastructure, ensure passwords are only shared on a need-to-know basis.
- Buy similar domains to make website phishing attacks a little bit harder.
- Dedicate several employees to check your ICO channels like Telegram 24/7. Have them perform regular audits to remove phishing posts and ban suspicious members.
- Don’t use Slack (if possible). The platform is full of vulnerabilities. Hackers can create an account like a moderator and write personal messages with fake addresses.
- Check your code again and again. Conduct penetration tests and hire trusted parties to find weaknesses.
- Build a strong community. A powerful community can protect and help you in times of crisis.
ICO Investor Personal Account Development
It is important for investors to have all their personal data and cryptocurrency reliably protected. The basic functionality of the personal account contains reception of cryptocurrency, token transfer, and settings. There is room for additional functionality as well: KYC, additional protection, and notifications.
An ICO bounty program
A bounty campaign is an offer that gives the individual the ability to receive compensation for doing marketing tasks, reporting bugs, or improving a product or service.
The main goal of pre-ICO bounties is to generate hype and awareness about the token offering. Post-ICO bounties aim to improve the product by getting direct feedback from the crowd. These bounty campaigns often reward bounty hunters with currency instead of tokens.
Additionally, bounty campaigns have proven to be an excellent way to build a loyal community around a product or service.
Some things to note include:
- Were the preliminary arrangements for listing on exchanges and the timing achieved?
- Have you determined bonuses depending on the time of investment or on the percentage of the total release?
- Is there a maximum hidden cap that stops collecting funds?
- Is there a uniform delivery of funds received for the team within 2–3 years?
A motivation for investing
- Can investors participate in profits, sale on the exchanges, or in the management process? Is it a long-term or a short-term investment?
- What fund amounts allow one to consider the campaign successful?
- In case the goal isn’t achieved, is it possible to return investments?
- Specify how the project was rated by ICO rating sites.
- Escrow, if it is used, that would be a big plus.
Advertising and promotion on social networks
Your main task is to create a buzz around your start-up. After talking to many successful ICO founders, we can assume that banners, placement in tight communities, RoadShow, and direct communication with people work best.
Run advertising on social platforms like Twitter, Slack, Linkedin, Reddit, Medium, YouTube, and others. Also, use internal communication channels like Telegram, Rocket Chat, Riot, etc., and create a BitcoinTalk announcement of the token.
Please note that Facebook has banned all advertisements for cryptocurrency, including Bitcoin and ICOs, as part of an “intentionally broad” policy against deceptive marketers.
If you want to reach a wider audience and create truly powerful advertising, conduct a full-fledged PR-campaign.
During an IPO, the PR-campaign is focused on a few major players, but ICOs’ target audience is small investors.
Business angels comprise a special category. They are participants in funding programs whose opinions are considered experts. They can influence the decisions of other investors. To inform them about the project, it’s appropriate to promote your project on rated cryptocurrency forums.The best move is publishing the project on popular ICO-trackers—services that collect and analyze information on current cryptocurrency start-ups. Seasoned investors turn their attention to projects only after their approval by a reputable tracker. Keep in mind, though, that some trackers ask for $1-3k for placement or for a detailed review.
List of major trackers:
Each month new trackers emerge, so the list might double during the preparation of your ICO.
You have found investors, launched the marketing campaign, and created the site—now it’s time to sell your tokens.
It is important to get as much funding as possible in the first hours of trading. You can use the following tricks to archive it:
Limit tokens. Disseminate information that the number of issued tokens is limited.
Buy your tokens. You will not break any rules of the ICO, but you will prove the viability of the project. No one can see who has bought tokens.
Encourage the activity of investors. Consider a system of bonuses for early-bird investors.
If your tokens have been conceived to payment, be sure to release them on the cryptocurrency exchange. If you create them on Ethereum, you can sell cryptocurrency on the internal Ethereum Exchange.
Things to remember after the ICO is done
After the distribution of tokens, coins enter the market. Immediately after this event, the price of the coin changes dramatically. The interest of investors in the possession of tokens is the essential trigger of the price. If participants merge all the coins in an attempt to earn a profit, and at the same time, other investors will not buy them, then the rate goes into drawdown. In the same case, if the project has an interesting offer to the public or is an innovative development, the price of coins at once or over time will grow. Please keep in mind that you should control this process.
Approximate budget for ICO
|Website for ICO (landing page)||4000–8000|
|Personal investor profile||6000–10000|
|Smart contract for issuing tokens||6000–10000|
|Establishing legal entity||up to 10,000|
|Media placement (banners)||60,000|
|Road Show and conferences||40,000|
|Community management (Bitcoin Talk, Reddit, etc)||20,000|
What amount of money can be raised?
Some say there is a 10X multiplier on what you spend and what you get, but that is not always the case. In general, the X you get depends on your project idea, previous history, and the level of confidence you can provide to your community.
By now, you should have a good idea of what an ICO is, its purpose, and what steps you should take to launch an ICO.
If you’ve reached this point but are still unsure about ICOs, we’d love to talk with you; contact us at email@example.com. Feel free to leave comments below if you have any feedback.