There is often considerable confusion behind the concept of Initial Coin Offering, as well as few person really know how the process of designing and launching an ICO works.
The blockchain is a relatively new phenomenon, and its implications for the economy have not yet been fully explored. The ICO seems to be as one of the most innovative frontiers in the use of cryptocurrencies for raising capital, and for that is growing the number of companies that are thinking to experiment this new way. But the culture of the phenomenon is far from to be fully explored, here some tips to keep in mind from who has experimented an ICO.
Let's start with the genesis, what is an ICO?
An ICO is a new virtual currency offering. Essentially, what happens is that startups that intend to raise equity, create, on the basis of new or existing cryptocurrencies, the so-called. "tokens", that is to say, functional units of currency exchanged with the capitals invested in a new project or in a new startup. In this way, newborn companies are able to obtain the capital they need, by leveraging the cryptocurrency mechanism, and selling units (or tokens) of their capital, on the basis of future promises of increasing the value of the underlying cryptocurrency and of the business.
The concept of ICO is somewhat similar to an Initial Public Offering (IPO) by which a company enters the stock market for the first time by offering its capital in the form of shares. Unlike IPOs, a company doesn't sell shares but offers stock of cryptocurrencies to investors, also known as tokens. Compared to IPOs, ICOs have a different duration, are opened for a relatively small period of a few weeks, up to a maximum of one month.
What is fundamental to consider before to launch an ICO?
Before moving on to the operational phases, companies or startups wishing to use ICO must proceed to a careful analysis of the real benefits, costs, and objectives that they desire to achieve. For example, the computational costs for creating an application with Ethereum are higher than others (AWS for example), so important to evaluate if you really need a blockchain protocol, ie a non-centralized application based on the client-server architecture. The first step is to know well the characteristics of a blockchain to understand if it is a suitable architecture for the project to develop and to be able to fully exploit its potential.
A second evaluation must be made with reference to the tokens. A company that intends through the ICO to promote a new project, will create a number of tokens, which will sell on the market at a predefined price. Tokens are the "number" of virtual currencies made available to potential investors. Is important do not underestimate this aspect, and define since from the beginning what will be the purpose and function or utility that token will perform.
Public company overnight, what does it imply?
Choosing an ICO rather than a traditional financing from ventures or business angels has obviously some benefits, nevertheless as well as some "black side".
Compared to traditional forms of financing, launching an ICO, allows the company to preserve the managerial control of the business. The company does not sell stakes, sells a new currency to obtain financial resources, ideally not related to business. Nevertheless, are often underestimated many aspects deriving from become a public company overnight.
The launch of an ICO brings a company from unknown, under the lens of public opinion within a few hours. Since from the beginning, the community management and the virtual credibility are a critical point to deal with, even if the fundraising campaign is closed. Is essential be prepared and aware of these mechanisms, because every action will be reflected in tokens' price. The team will constantly be under investors judgment and media and is important to consider in order to prevent unpleasant inconveniences. When a company presents itself on the world stage, and you create great expectations, it is legitimate that the public is constantly looking for confirmation of the goodness of the investment made. There will, therefore, be great apprehension and stress in building long-term value and profits in the short term.
What are the main components of an ICO?
Next phase is planning. It will be necessary to deal with both the operative aspects and the legal, financial aspects related to the public offer.
The first fundamental question to be answered is: how much financial resources do we need? the second fundamental question is: what is the goal that the company intends to achieve with this opening to the market?.
The fundraising process could be collateral to other main goals, such as building a worldwide community of users, attracting partners and highly specialized resources, and so on. Still, will be defined numbers of tokens to allocate, also considering the team' percentage, define the value of tokens, their release, whit which modalities, and if there are "reward" for early adopters, if both private and institutional investors are taken into consideration and if will be accepted other cryptocurrencies for exchange. All this information is normally summarized in a "White paper" that is disseminated among the community to clarify every aspect of the operation.
White papers are technical documents but above all internal document, they take many hours of work from the team, because containing the detailed explanation of every aspect of the offer, their production cannot be outsourced.
Other aspects that need to be taken into consideration include fiscal issues, hacker attacks, generation of virtual currency, and the protection of your investors. Precisely because it is not an instrument protected by any law, the more instruments will be placed to protect investors from society, the more the community will positively assess the clarity, transparency, and credibility of the offer.
Finally, while working on all these technical aspects, the pre-launch communication plan must be particularly effective. In this case, all the tools of digital marketing and traditional marketing are beneficial to create curiosity in potential investors in view of the upcoming launch.