Initial Coin Offering (ICO) has become a simple method for startups to raise funds cost-effectively. There is an absence of rigid conditions imposed by traditional lenders or the need for a track-record while designing an ICO.
However, not ICO’s have been successful, there have been some ICO’s that have failed miserably and a few have turned out to be outright scams.
Hence, firms need to have a solid structure in place to reap success. It depends on the potential of the business idea and support from strategic investors. Though ICO’s are not regulated, it is beneficial as it has fewer regulations cutting down on red-tapism.
Hence, in times of uncertain demand, firms need to determine the right number of tokens and fix an appropriate price.
How do ICO’s work?
The process of launching an ICO is begun when a startup publishes a professional whitepaper explaining its project vision, benefits offered to investors, distribution strategy for the tokens, legal implications and other terms and conditions. The tokens can be either exchanged for future products or services (in case of utility tokens) or the holders can get a share of the future profits (in case of equity tokens). A proportion of tokens may be reserved for the founders and other important team members. The tokens will be sold through the secondary market.
A firm has to take into account the market conditions and price its product more than the cost incurred for production. It also depends on the consumer’s ability to pay for the product. At least more than 50% of the total number of tokens should be reserved for the market. Since the token holders will function just like shareholders with a share in the future profits, firms have to utilize the funds raised properly.
The maximum cap should be set high for ensuring optimization about the token’s future value. At the same time, a firm should not go overboard by setting an out-of-reach cap as the firm needs to retain its revenue sharing and profit-sharing rights by trading tokens in the secondary market. While there has been stiff competition between utility tokens and equity tokens of late, optimism from the investors makes all the difference.
However, due to the absence of regulations, a firm may resort to illegal activities such as diversion of cash and abandoning of production.
Despite such limitations, ICO’s have immense potential to disrupt the conventional mode of financing and can be sustainable in the long term. It can pose a serious challenge to the traditional methods of crowdfunding and venture capital financing.
Tips for Ensuring Successful ICO Development
- Focus on storytelling – Have a strong grip on potential investors by offering valuable benefits. Connect them to your ICO through a clear vision. It will also help you in your marketing efforts as positive information will be spread about your ICO broadening its reach. The success of the ICO depends on the unflinching support from the investors throughout all the different stages of the project.
- Design an attractive website – Since the website acts as the first point of communication for the investors, devote efforts to make it professional. Invest adequate resources for ensuring easy navigation, developing unique content and user-friendly design. It will ensure that your ICO stands reliable. Have different sections to portray various aspects such as the description of your team members, roadmap of your project, an explainer video, the whitepaper. Develop eye-catching multi-media friendly graphics.
- Formulate a flexible marketing strategy – Ensure that you focus on satisfying your target audience for reaping benefits through your ICO. It has to suit the interests of new and experienced investors. Make sure to use different channels with a mix of free and paid tools for maximizing your reach. Spread awareness for creating a positive buzz about your ICO.
- Introduce your project team – There will always be a successful team working behind the scenes for ensuring a strong ICO. Hence, showcase the achievements and experience of your team of directors, advisors and partners. It will lead to more transparency and a higher level of credibility and uplift the interest of your team members in bringing your ICO to a higher level.
- Communicate with your interested community regularly – Interact with your investor community frequently for better brand awareness. Aim to gain the trust of potential investors. Never ignore even a single interested investor as it can backfire in the long run. Satisfying the community’s requirements is paramount to the success of the ICO. Design a list of FAQ (Frequently Asked Questions) that cover aspects such as token sale, minimum and maximum cap, time of the official launch and concerns regarding the information provided in the whitepaper.
- Learn to navigate the different cryptocurrency regulations – Whenever a firm is launching ICO’s for the first time, it can read about how other ICO’s are functioning and go through case studies to understand how the industry is regulated. Banning of ICO’s by countries such as China and South Korea shows that government interference can be a huge blow for the industry. Hence, the lack of adequate knowledge about regulations could prove to be the difference between success and failure for an ICO.
- Prepare a vision for the future – With uncertainty surrounding every market, focus on how your project can transform the entire cryptocurrency space. While earning profits is important, ensure that you provide an enhanced trading experience for all the stakeholders involved in the project. The true value of blockchain technology enabling business firms needs to be understood.
- Test your systems before the official launch – Make sure all the functions of your system are working fine before pulling the trigger. Ensure that you can handle a huge amount of traffic and equip your website with anti-DDoS protection. Though these issues may seem small to you, it can affect your operations once you go live.
Follow all these tactics for designing a successful Initial Coin Offering in your market and raising a handsome amount of funds for your business operations.
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