ICO Crowdfunding: Yea or Nay?
by Nyarai Femai
If someone was to ask you whether an ICO (initial coin offering) is a positive phenomenon in business, what would you tell them? Millions of people are neither pro-ICO nor anti-ICO crowdfunding. Most are either neutral or genuinely confused about their sentiments towards this modern capital procurement method. There are two sides to this division of thought.
The Pro-ICO movement is futuristic, open to new technologies in finance and more philosophical when it comes to the liberty that comes with cryptocurrency and blockchain technology. On the other hand, we have a collective of people who are against ICO crowdfunding because they are against blockchain technology as it poses a threat to traditional financial institutions. Also, this collective is critical of ICOs due to their susceptibility to scams like any other internet projects. Both arguments are relatively valid but if we were to carefully evaluate ICO crowdfunding, would it be a good or bad method of funding start-up projects? Let us weigh the pros against the cons of ICOs.
The affirmative side of ICOs
Crowdfunding is a concept that was birthed from the ideals of redirecting the custody of value (monetary or any other) from financial institutions to the people. ICOs enable a person to procure investment without a middlemen to dictates terms such as interest rates and so forth. However, ICOs are not meant to do away with our traditional venture capital facilities, instead, it is an alternative for people who desire to dictate their own financial terms.
For example, there is no such thing as ‘high-interest rates’ when raising start-up capital through an ICO as compared to the interest costs that businesses incur when paying back a bank loan. This is because the entity that is conducting an ICO crowdfunding initiative has the prerogative to determine the terms of return on investment to investors. So it is up to investors to use their discretion as to whether they would like to invest in the ICO or refrain from partaking.
It is also generally faster to raise capital through an ICO because there are no daunting processes of loan application and awaiting for approval. Another advantage is the convenience of it being an online project, which means the business pitch is conducted on an online platform. This can be another facet of promoting the project such that it results in media attention since the world-wide-web is the fastest way to gain exposure.
When listing your ICO on various alert services and online media outlets, it is a chance for the project pioneer to get feedback and expert guidance on how to improve it. Crowdfunding, is a good way to test the public’s reaction to your product/idea. If people are keen to invest, then it is a good sign that your idea could work well in its sector or niche.
For example, the world of ICOs has a free, volunteer expert rating platform called Icobench.com. This platform not only lists and advertises ICOs but has experts who rate projects accordingly to ensure that investors make informed affirmations. Unlike a private pitch or business proposal that is seen by a select few investors in traditional investment practices, crowdfunding has a wider spectrum of feedback from both investors and ICO experts that are able to scrutinize your project through your detailed business plan that is termed ‘the Whitepaper’.
Icobench has also become a trusted and valued determinant of the credibility of ICOs, so now making the necessary amendments and mitigating shortcomings to make the project profitable for investors is possible because there is a standard set by the platform. Most projects strive to optimize their ideas to the metrics of the rating platform in order to meet the general standards of a recommendable ICO. Therefore, this is a more informative method of collating data for analysis and evaluation of project viability and scalability.
Most successful ICOs are projects that provide tangibility to investors through frequent and detailed progress updates on the project. Basically, investors can have a breakdown of how their money is being utilised and how the project is generating returns. This could also helps promote the brand on an international scale through networks from investors around the world.
Looking at the rewards of using cyber crowdfunding for raising capital, it is clear that it is convenient for start-up projects that are not catered for by the traditional venture capital facilities. So if you are looking for a multi-faceted method of acquiring funding then ICO crowdfunding is for you.
However, there are a few hindrances that are associated with Initial Coin Offering that one should fully be aware of before venturing into it. Firstly, it is not easy to tailor a project for a blockchain platform and cryptocurrency. Not all projects apply, which is why it is a grave mistake to conduct an ICO without a watertight execution plan on how to add value to your token and generate profits. You need to spend a lot of time determining the following.
· Which blockchain platform will be used?
· The basis of your token and how it will gain value.
· The legal limitations of ICOs in your jurisdiction. I.E monetary policies that may affect the project.
· How to secure every aspect of the project since it is a cyber-based venture that is prone to hacking and phishing.
· The legal formulation of your whitepaper.
· The token allocation in the project.
If you do not consider all the required resources but instead, underestimate the amount of time or effort that goes into a successful crowdfunding endeavour, then you run the risk of being labelled as a scam, which brings us to our next challenge.
Many people have been victims of investment scams with a reported value of over $30 million (Scamwatch.gov, 2018). For this reason, people are extremely skeptic of any money-making internet project, which is understandable given that it is much more difficult to verify projects that are launched in the virtual space.
The surge of bad actors and website phishing in the cryptocurrency world has attracted ICO regulations and bans in countries like the United States of America and People’s Republic of China which have resolved to take a tougher stance towards cryptocurrencies.
Consequently, if you wish to conduct a legitimate online crowdfunding initiative, extreme attention to detail is required so that the project has no loopholes that may raise a scam red-flag in the ICO community. Most importantly, note that it is better to spend as much time as possible establishing an efficient business model for your project, than to rush and present a half-baked project.
Another challenge that one should be weary of is the risk of damaging your business brand should the project fail. Let’s be honest, no one wants to be associated with a sinking ship, so either do your best to make the project a success or delay your launch until all the logistics that bring about success are in place.
After all is said and done, ICO crowdfunding is a viable option for start-up projects that may not necessarily be catered for by traditional institutions that offer venture capital. The only way to totally make use of the opportunity to acquire online investors is to thoroughly design and execute your business plan. There are many failed projects but countless success stories in the ICO realm. Whilst there are challenges in this field like any other, more and more businesses are taking this route and perfecting their methods by mitigating those challenges. So if I had to decide it would be yea for me!
Bibliography
(2018, May 02). Retrieved from Scamwatch.gov: https://www.scamwatch.gov.au/about-scamwatch/scam-statistics
