Things to Consider When Setting a Funding Goal for Your Token Distribution Event

With careful planning, your TDE can become a success story

It’s one of the first questions you need to answer when creating a token distribution event (TDE) — what is your funding goal? Simply picking a random number or basing your estimate purely on guesswork can set you up for failure.

And failure isn’t uncommon.

Blockchain Hub reports that 66 percent of TDEs, or initial coin offerings (ICOs), missed their goal in September 2017, highlighting the need for solid research when setting campaign goals.

Forward Planning

Before you promote your project or launch your token distribution event, you need a plan in place.

Past projects that have raised millions of dollars through blockchain crowdfunding campaigns include NEO and Ark. These achievements were not a fluke; they were the result of careful consideration and forward planning.

Offering tokens native to your project is an essential way of creating a network and incentivizing people to use your company’s product, expand your ecosystem, and bring in other users. A successful TDE can help get your project off the ground by incentivizing people to use it from the beginning.

This means considering the following factors:

1. What kind of token will you offer?

Tokens are cryptographically secured representations of a set of rights. Tokens are generally hosted on top of another blockchain and represent an asset or a utility. Your token may give a contributor the right to use a network or software application, the right to redeem a token for a unit of currency or good or, the right to receive a share of future earnings.

2. How many tokens will you set aside?

It’s standard to set aside 10–20 percent of tokens and sell the remainder. A small amount of these tokens may go to core developers as payment, but the majority should be set aside for future work. For instance, you may wish to sell or distribute the held tokens in the future as an additional source of funds. Some companies also implement a vesting plan for tokens.

You should make this funding plan clear in your white paper or on your website, perhaps both. It’s a good idea to consult a business analyst or someone with TDE experience before creating this plan.

3. Will you host a pre-sale? A post-sale?

A pre-sale is a token event that you may choose as a kind of “soft launch” before your main campaign goes live and can be useful to build hype and gain early supporters (for instance, to fundraise to build a protocol). Almost all sales pursue a pre-sale phase that encompasses a private and public phase.

The target for a pre-sale may be lower than your main TDE, and the tokens should be available at a lower cost. It’s also a good idea to restrict the number of tokens available in a pre-sale, since essentially, contributors are buying tokens before your project is ready to launch.

A post-sale may occur after the main TDE if a company wants to find contributors to support the continued development of a project. A recent example is the FirstBlood project.

4. What model will you use for your TDE?

Consider if there is a maximum amount of funds that you would like to receive from contributors, whether you will set a price ahead of time, or whether you want the TDE to last for only a fixed period. Some examples of successful TDE models include:

• Uncapped with a fixed rate: Contributors exchange established cryptocurrency (such as ether) or fiat (government-controlled currency) for tokens at a fixed ratio. An uncapped TDE does not limit the amount of capital that can be raised. Usually, early contributors receive a better rate, so this model requires a time limit for contributions. The percentage of tokens available may not be known until the token sale ends.
• A capped TDE: This refers to the maximum or minimum amount that needs to be raised in a TDE. You may choose a “hard cap”, where the campaign ends once the number is achieved in a specified period. A low hard cap may increase demand for the tokens after the token sale, while a higher cap allows for more people to contribute and can result in a higher valuation. A “soft cap”, on the other hand, is more flexible and enables you to extend the TDE if the initial target isn’t reached in time.
• Dutch auction: This is where the price of the offering is set, usually at a high asking price, and lowered until contributors accept the price. This method may be useful for a quick sale.
• Reverse Dutch auction: This is a capped sale where tokens grow less expensive over time, encouraging contributors to take their time in purchasing tokens.

5. What will happen to unsold tokens?

Finally, you should consider what you will do with unsold tokens and the ramifications thereof when it comes to compliance with the commission that governs the jurisdiction you are operating within.

Invest in Your Project for Success

The days of launching a token within a half-baked idea are over. With the number of TDEs rising each year, contributors have the pick of the litter when it comes to supporting blockchain projects.

A startup may withdraw their token if a target isn’t reach. There are plenty of past examples across a range of industries, such as Inchain (insurance), Ark.io (linking blockchains), and Arcade City (ride sharing). Reasons for failure may include an unproven management team, no proof of concept, a poor token structure, a lack of promotion, or simply not explaining incentives or the overall benefits of the project.

The more you can develop your project — even creating a working prototype or beta model — the better. You also should ensure you have clearly articulated how your token will work, the merits of the project, the market opportunity, and the experience of your team in your white paper, as well as on your website and across other marketing materials.

Rocket by Etherparty makes it easier for startups to focus on their projects, rather than their TDE. This user-friendly platform lets you set up, launch, and track your TDE without a development team. To find out more or sign up for a free trial, contact sales@etherparty.com