ICOs, short for Initial Coin Offerings, have been quite popular over the past year. They’ve upended traditional angel investments and VC funding to become the most popular platform for early-stage startups to raise money. For most of 2017, startups used ICOs to raise an average of $100 million monthly throughout the year and over $3 billion for the year, surpassing traditional VC funding for early-stage startups.
These have been popular for a while now.
ICOs are popular for a number of reasons, but perhaps the most significant one is their ability to avail cash to startups quickly and without the red tape found in mainstream fundraising platforms.
In its basic form, an ICO allows a startup to create and sell its own cryptocurrency in exchange for bitcoin or ethereum. But unlike traditional IPOs (Initial Public Offerings), investors don’t get a share of the company, but instead get access to a unique product or service and an opportunity to sell the tokens once they go live – in case their value increases.
Success is not guaranteed.
But, despite the alluring nature of ICOs, success is not often guaranteed, and many startups have crashed and burned after failed ICOs.
Here is a brief checklist to help you determine if an ICO is right for your startup.
1. You don’t mind the competition.
It’s difficult nowadays – almost impossible even – to watch a full YouTube video or scroll through Facebook without getting bombarded by a promo ad about an ICO token sale. Startups are putting up lots of cash into their ICO marketing campaigns, all to woe investors that are finding it harder to invest in an over-saturated ICO market.
Big players are coming onto the board.
Plus, with many big players coming on board, the competition is only going to get fiercer going forward. Eastman Kodak, the photography company, announced at the CES 2018 that it will be launching an ICO and get into bitcoin mining this year. This is on the heels of another announcement by Telegram, the messaging startup that released plans to launch a multi-billion dollar ICO within the year.
Because of the fierce competition, it’s never just enough to come up with a good product or service and wait for investors to trickle in. You should be ready to put up a marketing campaign consisting of TV appearances, PR campaigns, YouTube and Facebook reviews, and listings on ICO websites.
2. Your startup can function within the boundaries of regulations.
When ICOs eventually hit the billion-dollar mark in valuation early last year, Wall Street and government institutions felt the need to act. In all fairness, ICOs had become a breeding ground for con artists and fraudsters, especially after a string of scams saw ICO investors lose millions of dollars in investments.
China is taking the extreme route.
Different countries around the world put in different regulatory measures, with China taking the extreme route by banning ICOs. In the US, the Securities and Exchange Commission (SEC) outlined measures to regulate ICOs and has even netted some suspicious ones within the past few months.
So regulation isn’t necessarily a bad thing, but it does present new challenges for startups that want to get into the ICO game. For starters, you won’t be able to just wake up and launch an ICO without oversight by authorities like it was before.
Plus, as the blockchain sweeps through other industries, ICOs will have to adhere to new niche-specific regulations. For instance, an ICO in the real estate business that deals with storage units or rental apartments will have to observe location-specific laws and codes to stand a higher chance of passing the litmus test for investors.
3. It’s a totally different game.
Cryptocurrencies trading, another booming trend associated with ICOs, is fundamentally different from standard trading on stock exchanges in many ways. In the same vein, while ICOs have some similarities with IPOs, VC funding, and angel investments, they are also different. Traditionally, you’d have to come up with an idea, pitch to different investors, and sacrifice a chunk of your company to those that come on board.
With ICOs, you maintain a good amount of control over your startup.
With ICOs, you maintain a good amount of control over your startup, including the business model and funding process. The due diligence process that startups have to go through with venture capitalists and angel investors can sometimes be a distraction for the startup and doesn’t guarantee success for the startup.
With the freedom that an ICO can give you, your company has a much higher chance of raising funds and succeeding – as long as your product or service offering is structured around a watertight business model.
So, if you feel like an ICO is the best option for your startup, gather all the materials you’ll need for a whitepaper and smart marketing plan.