Considering a Crowdsale to Fundraise for Your Start-Up? Read This First
Just because entrepreneurship lacks a safety net doesn’t mean you should blindly jump into any new venture.
Entrepreneurs, by definition, embrace risk. The very process of starting a business, securing funding and assuming the responsibility of running an organization takes a leap of faith that is inherently uncertain and fraught with pitfalls.
But just because entrepreneurship lacks a safety net doesn’t mean you should blindly jump into any new venture — including crowdsales.
Crowdsales are attractive to entrepreneurs looking to raise funds because unlike traditional revenue-raising methods, such as the pursuit of venture capital, you can retain control of your business (depending on your token’s functionality, of course!).
An initial coin offering (ICO), or digital token crowdsale, is a method of blockchain-based crowdfunding based on the exchange of a project’s new and unique cryptocurrency tokens for established cryptocurrencies like Bitcoin or Ether.
Contributors who donate during a project’s crowdsale receive tokens in correlation to the sale’s pricing model. These tokens may later be traded on exchanges as a project’s token increases in demand.
Successful crowdsales have already pulled in billions of dollars from a global network of contributors in 2018 alone. It is an advisable route to attain early stage capital. However, before leaping into the crypto-space’s hottest new way to fundraise, consider these five factors:
1. Do you actually need a crowdsale?
Consider whether blockchain technology is a natural fit for your project and whether an ICO makes sense for your fundraising needs. Crowdsale campaigns may raise much-needed capital, but they can also be expensive and time consuming. If you choose to go ahead, your business will be open to scrutiny before, during and after the token sale. You need to have a clear understanding of project goals, team responsibilities and implementation plans. Better yet if you already have a prototype or your project’s technology is in its alpha or beta phase.
2. Do you have the right team in place?
One of the first things that potential contributors will look for is experienced team members and advisors. Like any method of raising capital, having top talent, clear goals and a solid business plan in place before launch will increase your chance of success. Consider legal and fiscal obligations well ahead of the crowdsale and get professional advice before jumping in.
3. What will you offer in your crowdsale?
What’s in it for your contributors? Crowdsale tokens may be designed to raise capital, but they also have — or should have — a specific function or reason to exist within the platform or otherwise demand for the token could wane. For example, your token could simply be utilitarian focused, used to incentivise developers to build on your platform. It’s common practice to set a cap on contributions and offer “discounts” to early contributors to drive momentum.
Consider which cryptocurrencies you will accept, what percentage of tokens you will hold, what wallet you will use to receive payments and what terms you will set. For instance, you might want to launch a token that can be used within a specific app or game, as opposed to one that offers a share of equity or success in a broader project. Using smart contracts, you can distribute funds according to predefined rules enforced by the blockchain, such as the ability for token holders to vote on the future of the organization or projects the decentralized network should fund (See Dash as example!).
It’s essential to set up secure smart contracts ahead of your crowdsale. Likewise, if you plan on listing tokens on an exchange post-crowdsale, you should apply ahead of time, especially with the local or national regulatory body that oversees securitized tokens.
4. How will people find out about your crowdsale?
You need to have a solid marketing strategy in place to break through the noise and attract contributors. At minimum, you will need a website that hosts a whitepaper which clearly outlines the technical aspects of your project, the business challenge it solves, how your digital tokens will work within your project and your implementation roadmap. Blogs and other content about your project is a good idea for SEO and to educate your community.
If you want people to register ahead of time, make sure you release the details and promote registration well before the crowdsale. Listing sites and calendars are a good option for gaining visibility. Be active on social media, especially forums like Reddit, Telegram and BitcoinTalk, to communicate with potential contributors and to answer any questions the community may have.
5. Do you have post-crowdsale plans in place?
How you communicate before and during the crowdsale will be essential to its success, but you also need to consider the community of people that will hold tokens post-crowdsale. Be ready to manage questions as contributors will want to know how they can access their tokens and what exchange you will list on — being mindful and cautious of regulatory and legal ramifications for your specific type of token (i.e. utility-based tokens are different than securities).
Consider the above factors and you’ll be on your way to ensuring the success of your crowdsale campaign.
Visit etherparty.com for more information on Rocket, Etherparty’s all-in-one, end-to-end solution for crypto-crowdfunding. Stay plugged in to exclusive content, updates, and announcements by signing up for our company newsletter, and by following us on Telegram.
