Why Some ICOs Fail
The new way of crowdfunding startup projects called Initial Coin Offering has become extremely popular over the last year. There are at least two reasons for this. The first is increasing adoption of cryptocurrencies, which, besides transactions, allow for other functionalities such as smart contracts, and the second is the fact that ICO represents a much simpler way of fundraising compared to traditional financial instruments.
However, there are two sides to each medal (or in this case, the coin). Did you know that more than half of ICOs experience failure? Some statistics say that the percentage even goes up to 90%. Analyzes have shown that only a third of ICOs who reached the funding goals eventually reported on their collected numbers. And when there is no report, that probably means that the ICO has actually failed.
So, you’ll need to think very carefully before embarking on an ICO adventure. What are your goals? Getting money fast or creating a stable and sustainable business model? Be honest with yourself and others, because the people taught by above-mentioned experiences have become very careful.
Crypto enthusiasts often have strong ideological attitudes, and will only invest in those ICOs that are in line with their interests as well as ethical standards. They want to take part in the disruption of traditional industry and economics, and the smartest of them will do their homework, known in crypto world as DYOR (Do Your Own Research). Therefore, they are able to easily detect suspicious business ventures. To make your potential ICO successful, many things need to coincide. In the following text, we will take a look at all the aspects that need to be covered to avoid failure. Or, to put it more correctly, we will try to describe all the traits of disastrous ICOs:
No unique vision and non-existence of target groups
Initial Coin offerings fail as early as during the first steps because their product, service or solution doesn’t have a real market demand. No matter how exciting your vision sounds, if you haven’t defined the target group well, or if there’s little to no audience that actually needs your solution, things will definitely not go as planned. On the other hand, you should ask yourself if you are the only one who promises a game-changing solution in a given industry? Check if there are ICOs doing the same thing because if the answer is yes, then, unfortunately, you’re not on the right track.
I’ve seen a lot of ICOs related to the entertainment industry; For example, multitude of them are promising independent musicians paying out streaming royalties without involving record companies — my assumption is that most of these ICOs will fail, if not all (blockchain itself excludes intermediaries; if this technology becomes mainstream, there will be no need for an ICO to implement it).
Objectives pushing the limits of your capabilities
All ICOs have big promises, so be careful not to place the bar too high. Be realistic when it comes to the amount you want to collect. The excessive projections in soft/hard caps, as well as too ambitious scope of the project (the discrepancy between the existing infrastructure and what you want to achieve) are warning signs. Especially from the perspective of potential investors.
The greater the promise, the more resources will have to be invested in marketing activities, engineering, programming, and the like. There’s an example of an ICO from the energy industry that sounded phenomenal; these people managed to collect enough funds for the soft cap; however, it was not enough to achieve what was described in the whitepaper. And guess what, their token wasn’t listed in any currency exchange, although the moment for that has long passed in the roadmap.
Poor branding and marketing activities
Devil is in the details. You’re actually asking people to trust you unconditionally and give you a part of their hard-earned share of ether. Therefore, these people will pay attention to all the aspects of your website; choice of colors, graphic design quality, grammatical correctness of the copy, the way you communicate on social networks, the number of Telegram group members … If you haven’t done all of this professionally, then in the eye of the observer it implies that your project will also not be implemented in a professional manner. It’s best to build brand identity, awareness and the base of followers before entering the ICO phase. In fact, even before you enter the pre-sale phase.
Continuous measurement of results, studying the habits and needs of the targeted audience is also of crucial importance. Start with Google Analytics, identify what makes your targeted persona retain or bounce from the website, and correct the detected shortcomings.
Maybe you like your colleagues, but are they right for your team?
The success of your project depends on the expertise, skills, experience, and character of the people you have chosen for your associates. Not only when it comes to achieving goals, but also when it comes to investors’ perception. Potential supporters will check their background, and will often rely on intuition. Perhaps they won’t like the faces and LinkedIn profiles of the people shown on Team page on your website. There’s an old saying: Show me your friends and I’ll tell you who you are.
Non-transparency is always fishy
Here we come to the issue of transparency. If it is difficult or impossible for a visitor of your ICO website to find information about who you are and how to contact you, he or she will probably suspect that it’s just another scam. Presence on GitHub will also significantly contribute to transparency and confidence in your token.
Whitepaper that is likely to be blacklisted
We’ve already spoken about the balance between the capacity of your startup and the set objectives (big promises). This should also be reflected in your white paper. It’s an ultimate prerogative for a white paper to be easy to understand, logical, realistic, and to concisely explain every single detail. This document at the top of your web page is a key tool to convince people to buy your token. And, of course, do not neglect grammar!
Buggy software
Each new token is created using a software platform or computer coding. If you don’t perform enough testing and fail to make sure your platform is completely secure, it will cause uncertainty with future supporters. Ensure that you have a good reason why and when each phase begins (alpha, beta, private sale, pre-sale, main ICO crowdsale, token generation event, etc.)
Just another hype-driven startup
Finally, it is important not to forget to add a cherry on top. I’ve seen dozens of ICO websites and the overall impression is the lack of originality. Each section is in the same place, team members always smile from photos the same way and have similar “bombastic” references… When promoting your ICO and attracting your target group, try to find a way to stand out from the crowd. Ethereum did exactly that back in 2014; that’s why it was a success story.
We hope that this article was useful for those who are deciding whether or not to engage in ICOs. If you need more assistance, reach out to Kriptomat; besides offering an extremely simple way to buy or sell your favourite cryptocurrencies, the platform provides full support for startups that seek ICO financing.
