Bear market = the best thing to happen to ICOs. Time to fix the greedy metrics. Start low and prove yourself over time.
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I was going to write a small piece about LTO Network’s metrics, but eventually, it turned into a long read about the ICO market, the mistakes being made and so on. You might even recognize yourself here. If you just want to see numbers, then scroll to the bottom and press that clap button!
Is the ICO market dead? No. The greedy projects are gone. The useless whitepaper projects are gone. But there is still room for being legit.
Throughout 2017 and 2018 we have seen projects raise hundreds of millions of dollars. Everyone was making money: projects, private investors, and even crowd sale investors. Everyone was happy and going to the moon. As a project, why would you change that? As an investor, why would you require projects to lower the metrics or abstain yourself from making money?
It’s fine! And then the hype started wearing off…
There were a few projects which did well and are still holding up, but the sentiment overall is very negative. However:
The idea here is not to blame anyone, but rather to find ways to adapt to the current reality. Constantly postponing and waiting for the better market is not going to cut it.
From a project’s perspective, I am seeing a few particular problems:
Unrealistic amounts of money being raised (huge valuations).
- “Wait… this is only one problem! Did you forget something?”
Not really, I just believe it all starts here. There are problems related to high exchange listing fees, YouTubers doing reviews for insane amounts of money and etc. But the start of the journey is with the team, their appetite and what is needed to turn their ideas into reality.
Olaf from Polychain Capital said during the Web3Summit that valuations will get even crazier and higher — well, not sure. It definitely does not require 20M USD for an MVP. At least all the rounds cannot happen at the same time. Raise a little, BUIDL and prove yourself, raise more, BUIDL.
With a huge valuation and a huge hard cap from the start, you run into the following problems, which are like a vicious cycle:
- You want to raise a ton of money, and you cannot just do it in 1 round. Thus bigger investors take advantage of you and ask for discounts.
- You are trying to show a significant interest artificially restricting whitelists and making the community work for supporting you. While at the same time your buying pressure gets rekt by OTC deals.
- Eventually you do a crowd sale. However, the average token price is not actually at the level you established at the crowd sale — but the average of all rounds. And then the price starts going down…
You start pumping the price to the level you ended up with at the crowd sale, engaging in shady schemes, printing partnerships like crazy and so on. Eventually you waste a lot of time and money which should otherwise be spent on the product and the development.
All of this essentially kills the secondary market, kills your community — the people who stay with you long-term. This is literally the opposite of what you should be doing.
So how about you raise what is needed for the development? Actually, how many times have you seen a reasonable P&L from a project? Doubt you have seen it even once. Next to a P&L I have an even better idea: raise some first, prove yourself over time, and then build up credibility that way.
Overall, big money is not going to save you. If you grow the team exponentially in just a few weeks, that will end up functioning poorly.
Start low and prove yourself over time.
How is LTO Network different?
Firstly, we have P&L describing the cashflow model.
If you understand how to read it, you can see that the company is already getting revenues from pilots and clients. Have a look: you can also find signed agreements with companies and governments agencies to prove it.
Total hard cap (including the 1.4M USD seed round) = 5.2M USD for 40% of total supply. Without the seed round, the cap = 3.75M USD between private and public rounds. The remaining tokens are for the ecosystem fund, marketing, liquidity, team, and the company (to be released and unlocked only after a lengthy period of time).
Internal discussion after constructing the business model:
Me (Ivan): Wait, so why and how are others raising 15M USD and more?
Rick Schmitz (CEO): Burning through 15M USD is actually impossible if you would do it the right way. Look at the amount of people you need to hire in order to get through that burn rate. Although, it is quite simple to burn 15M USD if you don’t know how to build a company. Then you would be spending it on consultants who would promise you to grow the business but actually understand nothing. If you can burn through that so quickly, you are doing something very wrong.
Secondly, we have proven ourselves over time.
Not just as a previous company, but also as a blockchain company getting adoption. We have made great use of the 1.4M USD of community seed funding collected last December 2017. The strategy, the scope and the solution have been transformed into something we are really proud of.
- Custodian/supply chain for Dutch, Belgium and German governments
- Real estate solution for CMS, Deloitte, Merin, MSeven, OSRE
- Insurance case with GDPR compliance for DEKRA
- DTM solution for Heineken, Euronext and others
- Dutch Ministry of Justice
See a more extensive, yet not exhaustive, list here.
Oh we have also launched the real estate portal v1.0, which is one of the showcases of the technology (that is the one with Deloitte, CMS, and others).
The choice of the crowd sale model aka Fusion model.
We went through all of the existing models, and essentially all of them have one problem — a form of a sybil attack, if I am trying to pretend to be technically knowledgeable (mission wasted).
In all other cases, accounts get resold, any kind of questionnaires get gamed and so on: therefore, real community members have to buy those accounts while robots resell those to them. There is really no sense in making these boundaries. If the community wants to learn about the project, they will do so anyway — without artificial boundaries like some Proof-of-Love.
We will make a separate post describing the crowd sale model in detail. But essentially it means that any person, regardless of the size of their portfolio, can participate in the sale. It makes for the most fair and objective token distribution.
We do not establish a ceiling for ourselves from the start, but will rather work even harder to get there and prove we are worth it.
Our focus is #BUIDL — both the community and the product.
Hopefully this trend will be picked up by other projects, and we will see positive changes in the ICO market. Let’s follow this path together 👏
