What we’ve learned from helping our customers launch 10 ICOs
The number of Initial Coin Offerings has taken the market by surprise. Over $2.25b has been raised via ICOs this year alone, and a market which didn't exist four years ago is now competitive with venture capital.
However, it's not always smooth sailing. Today, 60% of ICOs are failing. Why is that? Sometimes a good idea will carry the day, but more often than not, that's not enough. Success requires more than just a strong product or service, or an excellent ICO white paper. This post documents what you need to know to ensure your ICO succeeds.
In the first half of 2017 only one ICO failed. But, from July onwards 60% failed to raise 75% of their funding target. To succeed, it is critical for companies conducting an ICO to generate enough interest. Here’s what we’ve seen that with help you with marketing.
- Conferences are where you can find the 3 Ps: prospects, partners and press. There are conferences in your target regions where you can make a splash. Do you know about them? Are you speaking at them? Do you know who to meet? See who attends your chosen conferences, and be prepared to pitch to the media and influencers there.
- Even the best ideas don’t just themselves. You need to get the word out, and this requires a good message and the right channel. Do you know the right places to get mentioned? While Coindesk was the place to be for bitcoin, Smith & Crown and others like it is where you go for ICO news.
- Do you have a hook to make writers interested? While your Medium posts and social media can reach your friends, there are a tremendous number of places that will write about your Initial Coin Offering. You just need to know who they are, and give them an interesting angle.
- Advisors have experience that open your eyes to new approaches. They also have connections that can extend your reach. Do you have them? You should have at least 3 to provide you with diverse connections and experience.
- If they are well-known in your field, they will give you credibility, and provide you with advice. You need advisors who others trust, unfortunately these people have been approached many times by now, so finding them and actually getting them to advise are very different things.
- With their connections and industry expertise, their pitch on your behalf can give you a leg up. Will they contribute as well as 'sell' for you? Especially to large buyers in the presale? You need your advisors to reach out to their networks, build publicity, and speak for you.
2) Lawyers are your friends
There are two aspects for why you need a good lawyer:
Is it a security?As defined by the Howey Test in the US and the Pacific Coin Test in Canada, ICOs can be a security. Government regulators have even said that if your ICO is a security then what you're doing is an Initial Public Offering (IPO), not an Initial Coin Offering. The amount of work associated with an IPO is significant. Between the rules for going public and the rules which apply afterwards (Sarbanes Oxley), we see that huge companies like AirBNB and Uber aren't going public because it's not worth it. A lawyer will help you ensure your ICO is not a security. This includes exploring a SAFT.
TaxesIf you raised $100m in the US today, you may have to recognize that as revenue and pay ~$40m in taxes in March. This tax implication has actually slowed down Initial Coin Offerings – pushing some into 2018. Incorporating in Zug, Switzerland where the tax rate is 14%, would save your company $26m in this situation. Moreover, if you're an open-sourced project you can set up a foundation in Switzerland and have them pay developers, lowering your tax rate even further. Moreover, Puerto Rico offers acts 20 & 22 which can lower corporate tax rate to 4%. A lawyer will help you know and explore your tax options.
A good lawyer will help you with both of these questions, and will pay for themselves many times over.
3) ICO Compliance is not Optional
You need to have risk and compliance set-up before you issue the tokens. In order to meet ICO regulations, you could need:
- Sanctions screening
- Blocking geographies
- KYC requirements of various countries
- Enhanced due-diligence for buyers of very large amounts
- Ensuring customers aren't obfuscating locations
- Name/address validation
IdentityMind provides these ICO compliance services and has helped companies launch 10+ ICOs. This month one of our customers was called into a mandatory meeting with their financial regulator to explain all the steps they conducted to mitigate compliance risk. They passed the test. If they had failed, they may have had to refund all the money raised, just like Protostarr in the US, or the various companies in China.
Your business must comply with ICO regulations on those jurisdictions where you’re planning to operate, and government regulators have no trouble making you return the money raised, ending your ICO and with the cost of having one, actually having you lose tens of thousands of dollars.
The knowledge of these three most important things for your ICO should guide and inform your next steps for an ICO launch. This is one of the most exciting funding mechanisms we’ve seen and we wish you well.