How to set up an ICO. The 11 essential steps
By now you know what an ICO is. [ Just to recap, it’s a fundraising method by which companies create native tokens on the platform blockchain; people can buy them with certain types of cryptocurrency either to use on that platform, to buy other crypto or services or to later trade at a profit. ]
If you have already moved on to the next level and are contemplating an Initial Coin Offering for your idea, there are a couple of preliminary things to go through first.
The one thing you should be very clear on is that many (as in, more than half) of the ICOs do not succeed. They simply do not raise the funds. Some don’t because the idea isn’t valuable enough, its timing is off, the marketing team blew it or any number of reasons.
The other thing is, it’s just not very easy to do it. There is a massive initial effort to put into the ICO, and there are various technical and legal considerations to look at. That said, it sure is easier than running around trying to raise money from financial institutions and venture capitalists with little time and inclination to take you seriously.
With that in mind, let’s go through the actual steps of setting up your first ICO.
1. The idea.
The first question in doing an ICO is, should you? Does the market need your product? Does it solve an existing problem? Do you have any market research to show product-market fit? Start by checking off these basic questions and try to double-check the usefulness of your intended product.
2. The team.
This will include both the core team and the advisors, advocates and allies you are planning to rely on. However, you should obviously start with your core team. Assemble people you will be proud to be associated with. Pay attention not just to their professional accomplishments, but also their reliability, personality, customer satisfaction level – anything that might affect the team effort to be undertaken.
3. The legal team.
Your legal team is essential, and, since blockchain technology is a novel field and presents dozens of challenges, you would be smart to choose a firm that is familiar with ICOs. They will be essential in navigating you through the legal aspects of your company setup, your token type and your jurisdiction. Depending on where you are and where your investors are coming from, various regulations apply. Also, the claims you make in your ICO should be revised by your legal team. You should always, always make sure to have legal backing every step of the way.
4. The company.
You probably won’t want the general liability associated with a partnership – i.e., if anything goes wrong, your prototype flops, your server explodes, or a partner runs off with the money, you won’t want to be liable at all. What you need is a legal entity with limited liability. Your legal team will best advise you on that.
However, make sure you understand that you, as a company, will need to comply with the AML/KYC regulations in your jurisdiction, if any. Anti-Money Laundering and Know Your Customer requirements are becoming the norm in Western Europe and the U.S., for instance. Moreover, in the European Union you need to also pay attention to the General Data Protection Regulation on top of all that.
When you set up the company, do it right the first time: set all the mechanisms in place, from token distribution, vesting etc. (more on that below) to roles and responsibilities in everything, from coding and marketing to payroll or advisory positions.
5. The token sale / distribution model.
First of all, what is your token going to do? Second, how are you going to sell it and distribute it?
If your token can be considered a security (check the Howey test), you have much stricter norms to observe, including AML/KYC. For utility tokens, the market is pretty much unregulated as of yet.
How, then, will your tokens be distributed? The are capped and uncapped sales; if capped, is it a soft or a hard cap? In other words, is there a minimal or a maximal threshold? Variations on hard and soft caps exist, too, as well as other, more complex types of sales, including dynamic ceiling (hard caps at pre-specified intervals), Dutch auctions and reverse Dutch, which depend on a mixture of cap and time to goal completion, etc.
Make sure you are very clear about the sale type, about pre-sales (early-bird discounts), about how much of the total token amount is going to the ICO owners, under what conditions, how much is set aside for operations, bounties, M&A, legal work etc. Everything should be made available to the investors as clearly as possible, so you need to understand the potential models and choose what works best for your case.
6. The whitepaper.
A whitepaper should outline the market, identify a problem, and point to a solution, the technology behind it and the team that will implement it. In the case of an ICO, it should also offer details about the company, the team’s credentials, the roadmap and, essentially, the ICO structure and token distribution. Anyone with no prior knowledge of the field should be able to grasp the main points of your proposal. It should look good, read well and feel compelling. This is your pitch. Make it count.
7. The marketing plan.
As with most things, M&A can make or break products. Bad marketing decisions, poor implementation, poor follow-up can seriously damage your perspectives, however valuable your initial idea. It’s a good idea to use a company that’s dealt with ICOs before. In addition to that, make sure you are present around communities and forums such as Reddit or BitcoinTalk, or messaging channels like Telegram and Slack.
This is where you can also include bounty campaigns, i.e. token rewards for project promotion, debugging, web content and design or error spotting, basically any task that a community member can perform to push your project forward and across to a wider audience.
8. The roadmap.
Development calendar and milestones, essential steps, verification stages, feedback loops, ICO timelines, final product/service delivery – everything should go into your roadmap. This is a publishable document that investors should have access to, a tool that will be referred to in order to check progress along the way.
8. The code.
You don’t absolutely have to publish code, but you’d better. It is one of the more reliable indicators of a company’s reliability and know-how, and savvy investors will be looking for proof that your ICO is not a scam. This is where you can shine. Good code speaks for itself and shows commitment, skills, and transparency. If you open your code for auditing, you too will benefit. But if you don’t get this right, i.e. if there is copy-pasted, buggy, or flawed code, the entire project will crumble.
9. The website.
Once you’ve got everything in place, you can launch the website. Don’t make it too flashy; people have learned from the experience of too many failed ICOs and tend to be suspicious of a company that’s heavy on appearance and light on content. Invest in quality hosting and design, but save on fluff and redirect those funds to hiring an impressive team and getting solid advisors.
10. The pre-sale and ICO proper.
Go through all the back steps and make sure everything is in ship-shape shape, to quote from a famous movie. Have you defined your product and technology, is the marketing machine ready to roll, do you have your timelines, have you ironed out every detail of token distribution and token sale, did you work out the exchange rate for your token?
In that case, press the button. Which in actual fact means, choose the best, most reliable platforms to launch and advertise your ICO on. And once it’s out in the open, get the M&A going at full speed. Do AMAs, chat up your potential investors and supporters, move around the community and propagate your idea, send newsletters, tweet, write LinkedIn posts, upload YouTube presentations, send Telegrams, do your best to keep the ball rolling. Keep all channels open to show transparency and willingness to engage.
11. Post-sale follow-up and development.
Once you’ve cashed in the proceeds, move on with the development, but don’t forget to keep the community reeled in. Show a prototype – or any kind of progress, for that matter. Keep the newsletters going, deliver reports on ICO sales, proceeds, conversion, conducts AMAs, answer all inquiries, keep the channels open. This will emphasize the seriousness of your project and reflect on token sales. Remember, the end of your ICO doesn’t mean token sales stop.
If you did it right, you can still reap the benefits of a successful ICO for a long time after it closed.
It’s not 2017 anymore; potential investors are more cautious, and projects are better built. There is a lot of competition, so you need to fight to get your idea across. But, with over $18 billion invested so far in 2018, the market is rich in opportunity if you do it right.