How to set up an ICO.The 11 essential steps
By now you know what an ICO is. [ Just to recap, it’s a fundraising method by which companies create native tokens on the platform blockchain; people can buy them with certain types of cryptocurrency either to use on that platform, to buy other crypto or services or to later trade at a profit. ]
If you have already moved on to the next level and are contemplating an Initial Coin Offering for your idea, there are a couple of preliminary things to go through first.
The one thing you should be very clear on is that many (as in, more than half) of the ICOs do not succeed. They simply do not raise the funds. Some don’t because the idea isn’t valuable enough, its timing is off, the marketing team blew it or any number of reasons.
The other thing is, it’s just not very easy to do it. There is a massive initial effort to put into the ICO, and there are various technical and legal considerations to look at. That said, it sure is easier than running around trying to raise money from financial institutions and venture capitalists with little time and inclination to take you seriously.
With that in mind, let’s go through the actual steps of setting up your first ICO.
1. The idea.
The first question in doing an ICO is, should you? Does the market need your product? Does it solve an existing problem? Do you have any market research to show product-market fit? Start by checking off these basic questions and try to double-check the usefulness of your intended product.
2. The team.
This will include both the core team and the advisors, advocates and allies you are planning to rely on. However, you should obviously start with your core team. Assemble people you will be proud to be associated with. Pay attention not just to their professional accomplishments, but also their reliability, personality, customer satisfaction level – anything that might affect the team effort to be undertaken.
3. The legal team.
Your legal team is essential, and, since blockchain technology is a novel field and presents dozens of challenges, you would be smart to choose a firm that is familiar with ICOs. They will be essential in navigating you through the legal aspects of your company setup, your token type and your jurisdiction. Depending on where you are and where your investors are coming from, various regulations apply. Also, the claims you make in your ICO should be revised by your legal team. You should always, always make sure to have legal backing every step of the way.
4. The company.
You probably won’t want the general liability associated with a partnership – i.e., if anything goes wrong, your prototype flops, your server explodes, or a partner runs off with the money, you won’t want to be liable at all. What you need is a legal entity with limited liability. Your legal team will best advise you on that.
However, make sure you understand that you, as a company, will need to comply with the AML/KYC regulations in your jurisdiction, if any. Anti-Money Laundering and Know Your Customer requirements are becoming the norm in Western Europe and the U.S., for instance. Moreover, in the European Union you need to also pay attention to the General Data Protection Regulation on top of all that.
When you set up the company, do it right the first time: set all the mechanisms in place, from token distribution, vesting etc. (more on that below) to roles and responsibilities in everything, from coding and marketing to payroll or advisory positions.
5. The token sale / distribution model.
First of all, what is your token going to do? Second, how are you going to sell it and distribute it? If your token can be considered a security (check the Howey test), you have much stricter norms to observe, including AML/KYC. For utility tokens, the market is pretty much unregulated as of yet.
How, then, will your tokens be distributed? The are capped and uncapped sales; if capped, is it a soft or a hard cap? In other words, is there a minimal or a maximal threshold? Variations on hard and soft caps exist, too, as well as other, more complex types of sales, including dynamic ceiling (hard caps at pre-specified intervals), Dutch auctions and reverse Dutch, which depend on a mixture of cap and time to goal completion, etc.
Make sure you are very clear about the sale type, about pre-sales (early-bird discounts), about how much of the total token amount is going to the ICO owners, under what conditions, how much is set aside for operations, bounties, M&A, legal work etc. Everything should be made available to the investors as clearly as possible, so you need to understand the potential models and choose what works best for your case.
6. The whitepaper.
A whitepaper should outline the market, identify a problem, and point to a solution, the technology behind it and the team that will implement it. In the case of an ICO, it should also offer details about the company, the team’s credentials, the roadmap and, essentially, the ICO structure and token distribution. Anyone with no prior knowledge of the field should be able to grasp the main points of your proposal. It should look good, read well and feel compelling. This is your pitch. Make it count.
7. The marketing plan.
As with most things, M&A can make or break products. Bad marketing decisions, poor implementation, poor follow-up can seriously damage your perspectives, however valuable your initial idea. It’s a good idea to use a company that’s dealt with ICOs before. In addition to that, make sure you are present around communities and forums such as Reddit or BitcoinTalk, or messaging channels like right.