Initial Coin Offering (ICO): Advices to Minimise Failure

  • by Theodosis Mourouzis
  • July 5, 2017
  • 0
Initial Coin Offering

An Initial Coin Offering, or commonly known as ICO, is a form of crowdfunding or fund-raising activity based either on established cryptocurrencies such as Bitcoin (BTC) and Ether (ETH) or fiat currencies. Startups that are incorporating coins into their product’s design, are using ICO as a method for capital raising since it is easier and more efficient, bypassing in this way the rigorous, time-consuming and regulated processes required by venture capitalists and banks. An advantage of this method is that it allows a team to focus more on their product rather than marketing and pitching to investors, which usually takes a high percentage of time.

ICO campaigns extend over a period of a week or more, in which potential investors are allowed to purchase the company’s coin/token (analogous to shares). During the campaign, investors buy the company’s coins/tokens and this purchase is executed as a form of smart-contract, that is equivalent to a shares’ acquisition agreement. If the company does not raise the minimum funds required, the money should be returned to the backers, while if it is successful the money is transferred to the company for carrying on with the projects development. This is encoded and secured via a smart contract and the data should be publicly available for transparency.
Below we summarize some key points that startups planning to go through an ICO should pay some attention to.

1. Whitepaper: Aim to develop a whitepaper that is clear, consistent, of well-explained content and clearly explains the technical details of the product. Don’t leave room for disputing the underlying technology and make sure you have the answers to the majority of the expected questions.
2. Ensure that the incorporation of a coin into your product follows naturally. If you just plug in the idea of a coin to go through the ICO procedure, it is wiser to seek traditional fund-raising routes.

Community and Advisors’ feedback:
1. Aim to receive sufficient feedback from experts within the community before you publish the whitepaper. Such feedback can be obtained by publishing posts and ideas in various channels/forums such as Reddit, Bitcoin Talk Forums, Bitcointalk or even social media platforms such as Facebook, Twitter and LinkedIn.
2. Form an Advisory Board and bring in people from both Industry and Academia that have experience in Blockchain technologies and Cryptocurrencies. Ensure that this team can advise you on technical, business development and marketing/sales issues.

Legal Issues & Transparency:
1. Be as transparent as possible with your intentions, stages, milestones and coins/funds allocation, especially for the founding team.
2. Ensure that the legal framework is fully defined and leaves no room for disputing. Hire (or partner with) a lawyer if possible in order to make sure you don’t break the law.

Professionalism and Planning:
1. Define the vision/goals of your product/idea and clearly communicate it to the community and potential investors. Never overpromise, over-plan or oversell your idea.
2. Meet the deadlines and milestones as listed in the initial project plan or whitepaper. This will show that you are trustworthy and you have seriously planned the project idea from the very beginning.

Photo credit © Shutterstock

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Dr Theodosis Mourouzis is a Program Director of MSc in Business Intelligence and Data Analytics at Cyprus International Institute of Management (CIIM), Research Fellow at UCL Centre of Blockchain Technologies (London,UK) and Advisor at BitJob (Tel Aviv, Israel).