5 Lessons from a Failed Token Sale
We‘re shutting down the Snips AIR Token Sale and refunding all our buyers. Here’s what we learned in the process.
Let’s get straight to the point: we failed our ICO. Despite receiving significant contributions, we did not hit our target. This might seem like a step back in our vision, but in fact, it’s just part of the game of building an ambitious startup.
There are many resources online about the importance of experimentation and failure, and most CEOs will have some personal story about a time when they failed. As a researcher and entrepreneur, I learned a long time ago that negative results are still results, and that they need to be documented and shared. This is an important part of moving an industry forward, as it prevents other people from repeating the same mistakes!
1. Venture-backed companies don’t need ICOs
The reason we got into blockchain at Snips was not for fundraising. Rather, we found it to be an elegant solution to a challenge we faced as a company: how can we incentivize our developers and users to self-organize in order to create a vibrant voice ecosystem? To us, a token had nothing to do with currency or fundraising; rather, it was a product feature that enabled us to run our app store as a DAO.
With that definition in mind, we can separate the concept of a token from that of an ICO. If a token is an item that can be sold, then an ICO is just a way to pre-sell these tokens. But theoretically, we don’t need an ICO to sell tokens, and we could just as well have listed the token on an exchange to be sold over time.
It is also important to understand why ICOs were created in the first place. Back in the early days of blockchain, projects were mostly open source and structured around a foundation. As such, founders could not raise venture money (they had no company from which to sell shares!) and thus had no other way to finance the development of their project than to do a crowdfunding campaign, aka an ICO. But at Snips, things are different: we are a venture-backed company, with over €22M raised to date and a Series B underway. We actually don’t need the money upfront to build the token, because we have money in the bank already. This means we also never needed to do an ICO in the first place.
“We should have clearly separated our token from our token sale.”
This was our first mistake: failing to clearly separate our token from the way we sold it. Today, we are cancelling our ICO, but not giving up on the token.
2. The importance of timing & pricing
Another failure was not recognizing that timing was bad. The market was crashing and we had early signs that many buyers were no longer getting into utility tokens, preferring security tokens or hybrid utility/equity deals instead.
Between the time we announced our ICO in May, and the time we actually started selling tokens in September, the market had crashed, with the price of Ethereum going from $800 to $200, then further down. This meant that not only were big buyers out of the market, small buyers were also no longer buying tokens.
This would have been bad enough on its own, but ended up compounding with another choice we made: pricing our token in Euros rather than Ethers. The initial idea was to democratize access to our token by making it easy for non-crypto people to buy and use our token with just a credit card.
The issue however, is that most people who were fiat buyers were small buyers (typical purchases < €500), while bigger buyers were using Ethers. Since the price of Ethereum had collapsed 10x, it also meant that our token was now 10x more expensive for crypto holders to buy! What was initially a good deal ended up becoming a very expensive one.
“We should have priced our token in Ethers, not Euros.”
In retrospect, since we did not need the money from the ICO and could have held our Ethers over a long period of time, we should have pegged the price of our token to the price of Ethereum, which would have been a more attractive bear-market deal for both crypto buyers (flat deal) and fiat buyers (better deal).
3. Being too ambitious can lead to bad choices
The whole point of our token is that it should be held and used by our users and developers, as part of our product. The more people hold tokens, the more likely our product is to succeed. As such, doing a public sale was the most sensible thing to do for us. The issue was that we had set ourselves up to fail by attempting to sell too much (€30M).
Doing a large ICO in a bear market meant that we had to resort to extreme marketing choices:
- Offering a 100% bonus. What was initially intended as a way to compensate for a downmarket ended up making us look desperate. People lost confidence in the project because the other projects that offered similar bonuses were bad projects or scams. The lesson here is that having good intentions doesn’t mean people will understand them. Optics in crypto is way more important than in the traditional startup scene, and first impressions count enormously.
- Doing a private sale. Our goal was always to do a public sale, but despite 70% of our buyers being developers, it became clear that if we were to achieve our overly-ambitious sale goals, we would need to do a private sale with big buyers and funds. But given the market, the rare people willing to cut million-dollar checks were “pump-and-dumpers”. This felt terribly wrong to us, as it went against all our ethical principles. We tried hard to pitch a long term vision, but alas, it was a moot point. We therefore decided to give up on doing a private sale, and stayed true to our values and community instead.
“We should have set a much lower funding goal.”
In retrospect, we should have set a much lower funding goal and taken our time to sell the tokens. This would have prevented us from making bad marketing choices that burned bridges with people who could actually have helped us build our token ecosystem.
4. Pay close attention to your brand
Another mistake we made was to overlook how our brand would be seen in the crypto space.
As a venture-backed company that has been around for 5 years, with a growing enterprise business and a growing developer community of over 20K, we had some great stats to show to prospective token buyers. But rather than pitch the big picture of Snips, we focused too much on the token itself. This created a cognitive dissonance where people who read about our token did not recognize that Snips was already an established company. This in turn meant that we would be judged on similar footing as whitepaper projects, despite having already built the very product for which we were selling the tokens!
Our brand was further weakened by two companies that were not on our radar:
- Snip Network, an ICO that turned out to be a scam (we have no affiliation and our products have nothing in common).
- AIRtoken, a startup that did an ICO and ended up being sued by the SEC, then forced to reimburse all their investors.
Since our token was called the “Snips AIR token”, it’s easy to understand why many people confused us with these companies! This is highly unfortunate, but could have been avoided with more careful market research.
“In crypto, optics are 100x more important than in traditional tech.”
The lesson here is that we should have pitched our entire vision, of which the token is one part, while paying more attention to other projects out there. And we should have kept in mind that in crypto, optics are 100x more important than in traditional tech: very few people do their own research, instead relying on what they hear and who else bought.
5. Momentum is everything
Finally, and perhaps most importantly, we failed to capitalize on our initial momentum by announcing our ICO too early.
Back in May when we announced our ICO, we had very little ready to launch: we were still figuring out regulations and banking, and we did not have a whitepaper or a tokenomics model yet. All we knew was that a token made sense for our product going forward.
Despite that, we ended up having a lot of coverage, with dozens of articles in the mainstream media, the tech media, blockchain outlets, and more. We spoke at dozens of conferences and meetups. This got a lot of people excited quickly, and we received millions of Euros of commitments in the first month.
But we couldn’t honor those commitments, and while we deployed the sale in record time, we had lost momentum. People started getting nervous, the market went down, summer holidays happened. And by the time we were ready, people were no longer excited.
“Momentum is everything: don’t lose it!”
The lesson here is that momentum is everything: if you don’t execute on the initial spark of interest, it will end up being very hard to recover. We couldn’t.
For Snips the company, it’s business as usual. We continue selling our voice technology to our enterprise customers (we just signed a few major deals that will be announced soon), and we keep building our developer community (we have a new product coming out soon, a DIY smart speaker). Momentum in our existing product lines is strong, and we are poised for a fantastic 2019. We are also preparing a traditional Series B.
Regarding the token, we are canceling the ICO and reimbursing every single buyer. If you are a buyer, look out for further communication about exactly how you will be reimbursed.
We at Snips will keep experimenting and building decentralized features wherever it makes sense. As such, some token is likely to exist in our product, even if it means distributing it for free initially when people contribute to our ecosystem. In the end, not everything was lost, and we have pushed the boundaries of what is possible in France:
- We created a playbook on how to legally structure an ICO in France;
- We convinced a major French bank to accept the funds from our ICO;
- We convinced a credit card processor to accept fiat payments for tokens;
- We showed that blockchain had real utility, even for established companies.
Personally, I have learned an incredible amount about blockchain in the past year. I learned that blockchain was more about community than currency. I met and befriended amazing people from all around the world. I saw many projects using decentralization to empower communities. And despite our ICO not succeeding, I believe more than ever that blockchain is a revolution in the making that will impact the world as much as the internet has. This is why going forward, I will invest more of my personal time and money into furthering the cypherpunk vision, which you can read about on my personal blog and Twitter account.
Thanks to everyone who helped push our vision, we are just getting started :)
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