Should I Launch an ICO? Here’s How
With the explosion of cryptocurrencies over recent years, many businesses and start-ups are turning to Initial Coin Offerings, or ICOs, to raise money to get their projects up and running. This week Finance Monthly gets the lowdown on ICO management from Dr. Moritz Kurtz, CEO & Co-Founder of Acorn Collective, clarifying the point, purpose and benefits of launching an ICO.
In an ICO campaign, early backers of the venture buy a percentage of the cryptocurrency, often based on one of the existing public blockchains, in the form of tokens created by the company they are supporting.
An ICO can theoretically be used to fund any project or product in any category, however, before an ICO is launched it needs to clarify:
- The concept
- The token model
- Funding required
- Next stages if funded
With so many ICOs in the marketplace you must lay out your concept in detail before launching an ICO. This way contributors can see the utility of your token, and understand what they are buying into. It also makes token holders feel part of the process of creating a new technology, platform or product.
Who should run an ICO?
Whilst any product or project CAN launch an ICO, that does not mean anyone SHOULD. ICO’s have become a popular funding model with start-ups looking to bypass the traditional, and more rigorous, process of gaining funds via venture capital backing.
Although technically an ICO model can be used to fund anything, it is important to consider:
- The necessity of the blockchain
- What you want to achieve
- Utility of your token: What real-world utility will your token have?
- Potential for regulation: Currently, ICOs are largely unregulated, but that does not mean they will be in the future. As the ICO market grows, many countries plan to impose stricter regulations.
ICO for Crowdfunding
An ICO could be greatly beneficial for the crowdfunding space, as it allows for the following:
- Removes transaction and platform fees: Current platforms charge 5-10% in fees.
- Be accessible to all: Without the same commercial pressures as traditional crowdfunding platforms, an ICO-funded platform would be able to accept any legal project in any category and country.
- Integrated post-campaign marketplace: The token economy created through ICO funding means the platform could have an integrated post-campaign marketplace, alongside reasonably priced campaign support services for founders.
Essentially, an ICO can be used to ‘crowdfund crowdfunding’.
How is an ICO mutually beneficial?
Successful ICOs benefit both backers of the venture and those relying on the funds it provides.
The backers can contribute towards a product or project at an early stage, thus benefitting from the increased demand for the token as utility increases. Meanwhile, projects can receive early funding to build their business venture without having to give away equity in the company.
Things to think about
Although launching an ICO can hold great promise for start-ups, it’s not all plain sailing.
Getting the funds can be tricky. When launching an ICO you must generate interest from contributors to encourage them to buy your tokens which, in a crowded marketplace, can be challenging. Not getting enough funds is one of the biggest risks. Not meeting the minimum target means the funds are returned to the token holders and the ICO is deemed as having failed.
An ICO is a great way of raising funding for the right projects in certain industries, but is by no means an easy solution. The ICO world is currently saturated with projects and competition for funding is intense. Making sure you have a viable and sustainable idea that requires blockchain is a good start. From then on, a successful ICO requires all the same focus on marketing and community building as any other form of fundraising.