For any businesses trying to expand or for a small start-up, getting appropriate funding is the biggest challenge. A new trend in blockchain technology allows companies to pre-sell access to services as a way to fund the development of those services. Companies create a token that grants the holder access to products, services, or subscriptions from the new startup. The initial coin offering (ICO) allows startups to sell those tokens before the company launches, as a means of fundraising. This means startup companies can raise large amounts of seed capital from individual investors, democratizing start-up funding.
An ICO is an extremely effective way to raise capital for a business. There are, however, various points and pre-requirements that the business owner needs to be mindful of, when choosing this system. There is a fair amount of community building and technical expertise that is required along with complete knowledge of regulatory compliance. A business that can effectively take on these challenges and establish a significant community of supporters will be rewarded richly.
What is an ICO and How Does It Work?
ICO can be regarded as a type of crowd sale in simple terms. When any startup goes in for ICO development services, it creates digital tokens that it sells to participants in crowd sale, usually in exchange for cryptocurrency like Ethereum or Bitcoin. Once the startup hits its fundraising goal, the tokens are automatically distributed to the participants in the sale. If the company doesn’t hit its goal, however, the participants receive their funds back. Thus, ICO development solutions are able to create a fair system.
Utility of an ICO
The purpose of these tokens varies for every business that hires an ICO development company. Nevertheless, it is important that the token created has some utility within the company. It can be used in future to buy products, gain access to certain services, or otherwise transact with the company. The tokens should not be confused with shares as the crowd sale participants do not receive any equity in the company.
An ICO runs on blockchain technology, which secures the digital tokens, preventing forgery and double spending. The concept of ICOs has become wildly popular in a short span of time. They are known to generate more funding for start-ups than early seed venture capital. Start-ups are able to amass hundreds of millions of dollars in a matter of a few hours through ICOs.
Businesses also prefer to list their newly created tokens on a number of cryptocurrency exchanges, thus inviting more people to buy and trade the token and creating an increased demand for the product being built. If an ICO included a reserve of tokens set aside for development, listing the same on exchanges could make it more valuable, increasing the value of the total development fund.
Tips for Raising Funds for a Business Using an ICO
- Define Your Goals Precisely
Any ICO is created with certain goals, ideas, and objectives in mind. These should be carefully laid out through a white-paper and a road map. The white-paper is a document that explains more about the ICO, the problem they want to solve, their goals, objectives, plans for the future, etc. The roadmap is a document that explains the timeline of your ICO’s activities, from project development to its launching, and each stages of the project are written there.
- Create a Strong Team
A strong team is the foundation of any successful project. A team of qualified professionals who have knowledge and experience in launching an ICO and are committed to establishing a successful and profitable ICO project is the prime requirement for any start-up. The team members should inspire trust among investors by virtue of their qualifications.
- Pricing Plan
The ICO plan depends mainly on the end goals and expectations from the project. There are some basic ways of preparing a good pricing plan:
- Undetermined price — the price is not set yet and the potential participants receive some amount of tokens for their contribution to your ICO.
- Fixed price — the price is fixed and participants can buy tokens, but they can trade them only after a freezing period.
- Dutch auction — first tokens are the most expensive and the price is decreasing over the investment period.
- Price Rise ICO — participants will get the best possible price for your tokens.
- Activate Social Media Marketing Channels
Social media is the biggest influencer when it comes to digital marketing. The ICO should be promoted and published on as many social media channels as possible to get the best results. Apart from the regular social media channels, they should also be promoted on crypto-based channels such as BitcoinTalk. Social media promotions help the project owner reach out to a wider audience.
- Create Relevant FAQs and a Help Center
A comprehensive FAQ or Help Center that provides answers to all relevant questions is absolutely essential. Users have a lot of questions when it comes to new ICOs and it is best if these queries get answered by experts. Once the set of FAQs is developed, it must be shared on all possible channels that the probable investors use frequently.
- Project Testing Before Launch
Testing the project before launch helps eliminate any errors that may be present in the project. This plays an important role in establishing the system as a professional set-up that can create the right impression on the investors and interested parties.
- Run a Pre-sale
A pre-sale is the process that takes place before the ICO begins, and it usually allows the participants to buy the tokens offered by the business. This new phenomenon has positive impact on the ICOs because participants often get bonuses, cheaper prices per token, and are directly involved in the ICO project from an early stage. As time passes, presale matters more and more for the participants and it is better for your ICO to include a presale phase.
- Proof of Work
In order to win the trust of participants, a proof of work must be provided. This can be given in the form of a live and working project. The business owner should understand and work out the best possible way to present goals and develop the product before launching an ICO.
ICO projects and campaigns are gaining traction over the years and their success is evident in the successful fundraising endeavours by various businesses. While it is wrong to believe that ICOs bring overnight success for businesses, this statement is not far from truth as ICOs are able to generate a huge amount of funds in short durations successfully. A good strategy and an effective plan of action goes a long way in ensuring the success of such projects.