How to Growth Hack Startup Funding With a White Paper and Blockchain ICO
There’s a new kid on the block of startup fundraising: the ICO.
ICOs, or Initial Coin Offerings, are a method of selling shares to a crowd of investors through the blockchain, a digital ledger. Rather than approaching family members or institutions for money, entrepreneurs are now selling “tokens” by creating their own currencies with no clearing house, centralized arbitrators, or third-party interference.
This fundraising is no joke. On June 12, 2017, a project called Bancor raised more than $150m in Ether, a currency on the Ethereum blockchain. Even billionaire investor Tim Draper jumped in on the action. The number of ICOs per month has risen dramatically in 2017.
Here’s how it works in five steps:
- A startup creates an ICO white paper, detailing their technical plan to change the world and increase the value of their tokens.
- Ideally, the team has a working prototype, marketing materials, and legal backing to increase investor confidence.
- The startup selects a method and terms for selling their tokens, with a goal of reaching crowdfunding targets by a specific deadline.
- Investors hear about the sale through the startup’s PR efforts, and often on ICO exchanges where tokens are bought and sold.
- When the startup’s goal is reached, the project is funded and the tokens are distributed to the investors. The startup receives cryptocurrencies such as Ethereum, fiat money such as USD, or a mixture of currencies.
The white paper is a critical component of the ICO. A successful white paper: 1) outlines the project, 2) describes the token distribution method, 3) lists the team members and their backgrounds, and 4) provides insight to the mechanism for creating value.
An entrepreneur or team looking to cash in on the ICO craze would be well-served to study some successful white papers from companies that met their fundraising goals. Notable white papers include:
- Ethereum: https://github.com/ethereum/wiki/wiki/White-Paper
- TaaS: http://taas.fund/media/whitepaper.pdf
- ICONOMI: https://coss.io/documents/white-papers/iconomi.pdf
- Bancor: https://www.bancor.network/static/Bancor_Protocol_Whitepaper_en.pdf
An underlying theme of these successful ICOs is that they extended core technologies, creating new use cases for the blockchain itself. That said, a close look at an ICO calendar published by TokenMarket reveals that there are startups innovating new technologies in sectors such as data storage, gambling, and energy.
After reviewing a number of ICO white papers, here is a 10-section format I developed:
- Intro / Overview
- Token Description
- Sale Methodology
- Redemption Process
- Security Guarantees
- Economic Considerations
- Potential Risks
- Future Work
Note that white papers are an open, unregulated format and as such, it is advisable to seek legal counsel when writing these documents.
That said, with a smart white paper, marketing, and well-executed strategy, startups might find that the tradeoffs of an ICO are favorable to their longterm business goals.