While acting as an ICO adviser I face a lot of questions with regards to the ICO process. There are more projects each day and more people are entering the space who are totally new to crypto and are attracted by the high amounts of raised money reported by media. I realized that it is a good time to write down the steps of ICO execution and addressing the common topics and issues faced when starting an ICO. This article is for those who are seeing opportunities to fund their project through crypto or those who heard about potentials of blockchain technology and would like to upgrade their business to align with these new concepts to be ready when the technology fully matures.
Let’s start with defining some vocabulary.
ICO — Initial Coin Offering
Investopedia defines it as follows.
“DEFINITION of ‘Initial Coin Offering (ICO)’
An unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.
Of course this definition is not accurate anymore for a couple of reasons.
The most contributed currency today is Ether, due to the fact that majority of token offerings are happening on the Ethereum blockchain.
The other point which I want to disagree with at least partially, is the statement that ICO is used by startups to bypass the regulations.
The writer of this statement looks at ICOs from the perspective of finance, and fails to mention that majority of ICOs use blockchain as their underlying technology where their goals often include providing transparency, immutability and removal of third parties like banks and financial institutions to cut the cost of financial transactions. If anything blockchain and smart contracts are here to improve regulations or substitute them as the technology matures. There is no single word in this definition about the blockchain or smart contracts.
I guess the site which writes about money can’t see past their main objective.
According to investopedia
A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
You can notice that this definition doesn’t mention blockchian again. Although blockchain is not necessary to implement cryptocurrency, almost all of existing crypto-currencies use some form of blockchain technology.
I think this are the major failures of these definitions.
They are missing the main point. They are talking about what these words mean without mentioning the most important part of the meaning, the technology that underlines the whole process.
according to Wikipedia
A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.
After defining main concepts, let’s go over technicalities and more specific steps within the ICO.
1. Review other ICOs to see what you need to work on
You can learn from those who were successful or failed before you. Surf the internet and find out which ICOs raised respectable sums of money and what they did to accomplish it. There are various sites rating ICOs. By going to them you can review their teams, advisers, white papers, their marketing strategies, ratings and comments of experts in the ICO space. One of the sites worth starting your research on is ICOBench. They currently have over 2,500 ICO listings, new and old and you can browse through them and search by various criteria and analyze them.
Keep in mind that your project will undergo the same scrutiny when you execute it. Subscribe to their Telegram and Slack channels while you are there, find their Bitcointalk thread and read their Medium articles. Give yourself several weeks to 2 months for this stage of your ICO preparation.
2. Creating white paper
There are services which can write a white paper for you. Although I agree that at some point you should hire professionals to help you with polishing it and critique, the first drafts you should write yourself. You are the one who has they idea and you are the one who should formulate it.
Also, before you talk to professional editors, take the necessary time to engage with advisers who will help you with any unclear wording within your work and provide you with feedback and constructive criticism
Advisers are not free, but they will not cost you any money before you actually successfully conclude your ICO. The manner in which the concept of advisers works is through offering them some percentage of tokens which you will issue during the ICO. Technically advisers are a part of your team but it is up to you to seek help and find out how much they can offer you. It is up to you to call the meetings and ask questions and get your advisers involved. It is up to you to search for advisers who have good track records. One of the good places to find advisers is ICObench, a website which lists ICOs and people who have been approved as Experts and have the ability to rate ICOs. If you approach any of these advisers before your ICO is listed, they can join your team and work with you.
You can see a list of ICO people here. These people are sorted by scoring algorithm which in short implies that the higher on the list the adviser is, the more ICOs they were invited to and presumably have equivalent experience. It is also likely that they are busier and might not be as accessible.These men and women have made being advisers a full time career.
Make sure that in your white paper you answer all the questions, which you have found investors/contributors were asking and experts were criticizing. Ensure that you have good justifications for the reasons you will be using blockchain for your project and if you don’t have a good one, explain that you are using tokens and crypto to raise funds for your project and the value associated with it.
3. Building the Team
Building your team is the second most important task after creating a white paper. I found that the best teams are those who have 2 or 3 top members who have already working relationship and live in physical proximity, who have business dealings with each other and complement each other in their skills when it comes to solving initial business challenges.
Of course existing companies which have existing product have the highest chances of succeeding.
With good team, you will be able to:
1. Approach serious players in the field
2. Build your product early in the process
3. Attract popular advisers and so on…
So how do you attract potential members for your team if they are living in other parts of the world? First off don’t send them emails or contact them on Facebook. Not only is this less than professional, the important skilled and knowledgeable people are very busy and won’t have time to respond to this form of outreach.
A far better way of finding team members is to use LinkedIn as a way to initiate any contact. On LinkedIn you can find profiles of people who can be easily identified within the domain you are trying to get help with or a position to fill.
Initiate a connection with them and request a time to have a conversation over the phone, skype or other mode of communication. Create a way for you to have the potential team member meet with your other co-founders and make this a visual conversation so that both sides can see each other. When you create this kind of communication, you are showing that you are as serious about your business as they are serious about wanting to work with your business. I have noticed over the many years I have been in business, people to be more receptive and you will develop relationships for future cooperation when you can create a visual conversation. The fact is that a well run visual conversation will be more professional, it will be more “official” and that meeting will be a lot more memorable
4. Resolving your legal questions
It’s very important that you associate yourself with experienced and knowledgeable legal advisers in your jurisdiction. Most legal professionals will accept you as a client, but you need to make sure that you pay for a real service and not education of your legal adviser. As Cryptocurrency and ICOs are a new domain, not every lawyer has had the opportunity delve into the legal ramifications on how to deal with these new legal requirements. Look through lists of ICOs and access their sites, find who their legal advisers are and then contact them. Contact several of them and review their offers and experiences.
Keep in mind that the jurisdiction you are living in might not have a legal framework to run an ICO.
It is possible that the only way for you to register your ICO is to relocate your business to a crypto friendly jurisdiction. Also, educate yourself on the legality of offering tokens in your area if they are considered securities. Even if you design a token which is utility based, work with your legal advisers to ensure that the utility aspect of the token is clearly defined and there are no questions left unanswered. At some point in time, the regulatory bodies might ask you to explain it to them and this is more likely to happen if your project is very successful. Even if your jurisdiction approves your token, you might still be liable for selling your token to citizens of countries where your token would be considered illegal. Make sure that you restrict such users through a KYC and AML registration system.
5. Preparing your website
Your website is your online business face, where your future contributors will see all of your work. Take the time to create a good website and avoid those cheap cookie cutter style sites that everyone can create in a few hours. Hire good designers and make your website stand out. Your website should load fast and be secure with good hosting and DDOS protection. It should have a link to your whitepaper, “prototype”, include important details such as information about the token allocation, links to your social media accounts, communication channels and your blog.
6. Security of your ICO platform
Smart contract development follows certain rules which include security protocols.
Below is one of the better guides to follow when developing smart contract.
Your smart contract orcrowdsale contract can’t be isolated by Cloudflare or any local servers as smart contract can be accessed through various tools which are publicly available, and this is beyond your control.
Anyone who knows your ICO contribution address and has technical skills, can directly interact with it without using your website.
The crowdsale smart contract has to be built in such a way that it can defend itself from attacks, when someone attempts to access it through means other than your website.
Your landing page, on the other hand, is a different problem.
It can be hijacked or it can be hacked.
For high profile ICOs hackers were successful in modifying DNS settings of the website and redirect traffic to awebsite that looks exactly alike with a different contribution address.
Some hackers were able to hack into the website and modify contribution address directly on it and for this you need to talk to security experts who are dealing with website security.
If you are anticipating high traffic, you should setup balancing server for your landing page. You can consider this service for distributing traffic over the time to your web page and also slow down contributions to your smart contract so as to not overload the Ethereum mainnet.
7. Other security considerations
Some other security guidelines are that you don’t share your crowdfunding address on your telegram, twitter or blog.
That address is in only one place which is your website.
The address could be shown there or contributors would need to login/register for that reason.
Monitor your slack and telegram for accounts which have names exact like founders and or team members. The impostors will be contacting users with all kind of deceptive messages to make their contribution to different address than your smart contract address.
Make a point of helping your users not fall for any impostors by only referring to pinned messages as being official messages. Remember anyone can post official looking messages and redirect contributions to a different address.
8. Hiring your smart contract developer and auditing their work
I’m a developer myself and have gained my experience in smart contract development through the freelancing website Upwork. You will have the ability to search for top rated developers and find exact matches for the project and their prices. The freelancing website takes care of dealing with payments and you can schedule milestones and pay only for delivered parts of work. Developers who are top rated not only have expertise in the domain they are advertising themselves but they also go that extra mile to satisfy their customers to maintaining their rank.
Since an ICO is a one time event and the contributions collected can go up to tens of millions of dollars, it is important that the work done by the developer is audited by third party auditors. Depending on who you approach, the audit might be more expensive than the actual development, but that cost is still insignificant when compared to the potential problems you could face if the smart contracts were designed with errors or security holes. Make sure that you contact a reputable company for audit work because the most reputable ones, can have a wait time of several weeks or even moths.
9. Ensure that your crowdfunding campaign follows common rules
Each crowdfunding campaign has parameters such as min cap, max cap, campaign duration, token allocations and what happens to tokens which are not sold. There is this tendency to put min cap very low and high cap very high. If your min cap is 1% of your max cap, than your project doesn’t look very serious. If e.g. your max cap is $10M and your min cap is $100k than obviously you don’t need $10M to raise if you would be satisfied with $100k.
Keep in mind that if your campaign doesn’t raise the min cap, you are obligated to return money you have raised to contributors. Measure your expectations appropriately.
Inform your contributors what will happen with unsold tokens. Let say that you sell only 20% of your initial supply, this would mean that 80% of tokens is still in the contract. Explain what will happen with those tokens. Some ICOs burn unsold tokens and some allocate them for future uses.
Offer good bonuses to early birds and provide a reasonable stepped pricing model, so that at each given stage of your campaign, your contributors have the perception that waiting with the purchase will be less beneficial for their pocket.
Reserve tokens for advisers, bounties, team members and co-founders. Make at least 50% of tokens available for sale or you will not be received well by investors and contributors.
10. Announce your ICO
Over the last year and a half, new sites have been created which list ICOs, rate them and provide options to review their performance. You can provide them with lots of relevant information about your ICO such as your team, white paper, milestones, links to blogs and website and more.
The importance of those sites continually changes as new powerful players are entering the market and bringing new ideas on how to present new ICOs.
Here below you will find links to articles and forums listing best sites to list your ICO.
11. Your social media and communication channels
It is expected that any respectable ICO has social profiles and uses popular communication apps. One communication app which seems to be very popular is Telegram. If you don’t have a Telegram channel, many will think that you are an amateur in the ICO world. Make sure that you have it. Based on my estimates, popularity of your Telegram channel will have direct impact on how much money your ICO will raise. If you want to raise $20M, make sure that there is at least 8,000 to 10,000 active users and they need to be users who understand crypto.
Buying Telegram users or driving users from unrelated areas to your telegram will not be very useful.
Another important place to create a presence is Bitcointalk. Make sure that you have an active Bitcointalk thread. If you can’t get any interest in your ICO on the most popular crypto-forum, you are not going to get a lot of traction with crypto investors. If you can’t get 50 pages of such discussions, your ICO most likely will raise less than $1M as per my estimates at the time of this writing or possibly fail.
You should create your own publication on Medium and start creating articles for your audience.
It is expected that an ICO has its own articles on this platform.
It is a popular repository platform and a place where programmers find projects and collaborate. Store your smart contract and prototype code publicly (except if it’s security sensitive) so everybody can see it and demonstrate that you are more than just a nice idea in a white paper. Those who understand programming languages will be able to see the extent of your technical expertise and provide their opinion in forums and Telegram.
Facebook, Twitter and Reddit.
Have social profiles for all three and share your articles and other relevant messages with regards to your ICO.
Create your YouTube channel and post an explainer video and interviews with the team, co-founders and experts in the area of your project.
12. PR and Marketing
Unless you already have an experienced marketing team, please hire professionals who have a proven track record in the ICO space. Many of the ICOs I get involved in, believe that they have required experience to market in crypto space. They frequently don’t realize that they are dealing with three distinct groups of contributors/investors who are worlds apart in their habits and needs as a ICO participant.
- Crypto investors, who do not necessarily read Bloomberg, or spend time on Facebook, but rather spend their time on Reddit, BitcoinTalk, Telegram, Discord and/or Slack channels and read Coindesk, Cointelegraph and Steemit for example.
- Traditional high worth investors who have never created a crypto wallet and heard about Bitcoin appreciating 1000% a year. This group is usually not technically savvy and would like to deal with someone reputable to get them involved with ICO.
- Investors who don’t speak English and live in China, South Korea, Japan or Russia and need to be found on language specific forums and introduced through their mother tongue. They also need to receive support in their language.
You need an understanding of methods to reach these audiences which are different than traditional advertising methods.
Banning of crypto related ads by Facebook, soon to follow Google and Twitter, will make the task of promoting even more difficult when using traditional methods. Search for successful ICOs and ask who did marketing for them and approach those companies. It is not uncommon that some of the successful ICOs have spent anywhere between $500K to $1M on marketing and PR.