Startups are always on the lookout for good opportunities. For many, this means raising money through an initial coin offering (ICO), as opposed to the more traditional venture capital route. In the simplest terms, an ICO is a fund-raising means in which a company releases its own digital currency in exchange, typically, for ethereum or bitcoin. The point is to attract investors looking for the next big cryptocurrency score.
With this trend picking up steam, your startup might be wise to investigate whether an ICO would be right for you.
Some considerations are in order One is that individual investors are growing tired of initial public offerings (IPOs). Sure, there’s plenty of opportunity to make money that way, but it’s nothing like the excitement surrounding a hyped-up ICO.
With hundreds of millions of dollars spent on ICOs over the past few months, there is no slowdown in sight. In fact, because more startups are considering the benefits of an ICO, don’t be surprised if 2018 is even bigger in this area than 2017 was (and that’s saying a lot).
Here is what your startup needs to know about ICOs.
1. They represent a different approach (so get in the right frame of mind).
In the past, raising funds was all about pitching your idea to venture capitalists. This opportunity still exists, but it’s no longer the only game in town.
As a different approach, wrap your head around the idea that an ICO could be the best way to obtain the cash you need to realize your goals. Maybe you’re the founder of a technology startup that develops super-cool iPhone apps. Once you realize that you need to raise funds, to hire new talent or kick-start your marketing efforts, you’ll realize that it’s time to consider your options.
VC firms and angel investors are worth a shot, of course, but an ICO may be you best strategy. However, I’m not here to tell you that it’s easy to succeed with an ICO, which can be every bit as challenging as securing venture capital; but you do have more control over the process.
Tip: A variety of tools, such as DropDeck, are available, to aggregate and rate funding opportunities, whether you’re an investor, ICO or SME. DropDeck, in particular, uses artificial intelligence to rate companies for investors choosing where to invest. “Everyone wants to fund promising companies,” DropDeck’s CEO Alon Vo said in a press release published on Bitcoin.com.
“DropDeck wants to remove the barriers that keep average funders away from the greatest opportunities,” Vo continued. “There are a lot of existing platforms for you to do that, but we want to build your favorite one.” The difference between DropDeck and its competitors, the CEO claimed, is that his company is using sophisticated algorithms and artificial intelligence to sort through the companies for you.
2. Competition is fierce.
Remember: There’s more to success with an ICO than meets the eye. You can’t assume that investors will flock to your ICO. Instead, your success (or failure) is directly tied to your marketing.
Still, some ICOs have been quite successful: The total amount of money raised via ICOs each month, according to a CNBC.com special report, is in excess of $100 million. This means two things: Individuals are willing to invest, and investors have options.
While this surge means that ICOs are receiving more media attention, it also means that competition for investor support will only increase. Companies that want to distinguish themselves among the saturated ICO playing field have to educate themselves on best practices and execute at a level that is as mature as that of companies vying for IPOs.
Matt McGraw is founder and CEO of Dispatch Labs, a blockchain protocol (blockchain being the technology that underlies cryptocurrencies); his company set to initiate its own ICO in early 2018. In a call to me, McGraw said he believes that professional execution will be the key to ICO success going forward.
“Going into 2018, we have larger enterprises jumping on the ICO train, so the market for mindshare is oversubscribed — at least in relation to the sophistication of ICO execution,” McGraw said. “Up to now, many ICO projects simply haven’t been very professionally executed. We see more sophisticated and professional ICO advisory firms, PR firms and financial firms as the key differentiator for a successful ICO going forward.”
I also recently chatted with Nadav Dakner, founder and CEO of InboundJunction, a marketing firm for startups and blockchain projects, for my podcast (In The Trenches with Andrew Medal). Dakner said he believes that because the competition is tough, and the market is getting extremely saturated, companies contemplating an ICO need a lot of budget to stand out; they also need to employ growth-hacking tactics and a lot of creativity.
“We have advised and helped the marketing and business development of many ICOs in 2017, and one thing we’ve noticed about projects that succeed is the integrated marketing approach,” Dakner said.
Because there are literally hundreds or even thousands of ICOs that launch every month, you will hear only of the good ones. A combination of PR, ICO listing websites, YouTube reviews and perhaps a TV interview or two is a good start, but not enough. A solid advisory team and some entrepreneurial background among your founders are the elements that will truly convey to investors a sense of trust that you can build a company.
Apart from that, there are no shortcuts. ICOs need to first grow a huge Telegram community (a social-chat tool that most crypto companies use to communicate) over several months, invest in a great-looking website and video and understand that there are no shortcuts.
The easy days of just putting out a white paper explaining your project’s technical aspects and the composition of your team are over. You must now establish a real use case for the token you intend to promote and the blockchain technology that will fuel it.
3. Communication is key.
No two companies or investors are the same, and an ICO is no exception. This is what makes effective communication just as important as your marketing strategy.
The way you communicate with investors is essential to your success. Have you outlined the details of your ICO, such as the technical information that investors are sure to mull over before making a final decision? How about your vision for the future, including where you see your company moving to in the next year?
“We communicate with hundreds of ICOs that want to list themselves on our website and community,” Alex Buelau CEO of CoinSchedule told me. “Based on what we see, teams that have a very clear and well-defined road map and a not-too-heavy marketing white paper do well. It’s also extremely important to have an attractive one pager [description] and website, because people buy with their eyes.”
A clear marketing message puts you in a good light with investors. They want to see a clearly defined company strategy, and possibly a serious lock-up on token bonus for the founders, to create ithe sense that the company is in it for the long haul. Alternately, a cloudy message can lead to your business (and ICO) being overlooked, in favor of the (heavy) competition.
The upshot? If your startup has hopes of raising funds without following the “same old” traditional path, an initial coin offering is an idea to consider. This is a new way of funding a company, with many entrepreneurs taking notice. This year, 2018, is set up to be the year of cryptocurrency and ICOs, so now’s the time to learn as much as you can.