Launching an ICO- a new way to fund your startup?

Published in

The Startup

5 min readNov 21, 2017

Earlier this year my business partner and I began our startup adventure. We did right steps (in theory): did extensive market research, read “The Lean Startup”, prepared the Business Model Canvas and basic action plan, quit our paid jobs, put an MVP out, collected the potential customers’ reactions and feedback, reworked the product around it and then we had to think as well about funding as the next version would have taken a bit more than just 2 people if we wanted to hit the market fast.

Traditional Funding Methods

We have researched quite a few options for funding and here are the top pros and cons for each of them according to us*:

Institutional Funding

European Funding Programmes for small businesses and other local or regional grants:

Pros: Once your project is approved, (in most cases) you don’t need to give the money back, no equity taken
Cons: Super long and complicated application process, average amounts (enough for a few months, but not for the whole product development), mandatory and complicated reporting
The deal breaker for us: time spent on admin

Traditional VCs & Angel investors

Pros: You have somebody with expertise in the field who could link you to potential partners or other experts, mentors, potential customers
Cons: Due diligence periods could take 6 months or more (⅓ of average startup life), mandatory transfer of equity/shares (up to 30% of the company’s ownership), heavy admin and reporting required
The deal breaker for us: somebody else is taking the key decisions for your company’s future

Accelerators

The ones providing seed funding- not all of them do, so if you go that way, make sure you clear that point in advance.

Pros: access to coaches and mentors, access to industry experts, investors
Cons: if they give you money- they ask for equity and we are talking really small amounts here that you could barely survive with for a few months; many of them are quite new and still learning, so the support is not always assured
The deal breaker for us: giving up 5–10% equity for a few thousand euros

Crowdfunding

Pros: Open to the world, most platforms take percentage (5–10%) of your total collected money
Cons: you have to give back some gadgets, perks and if you don’t have a small physical product, it could get quite difficult; people participate there with very small amounts, so you have to convince a lot more people to get decent funding, hence you have to run a huge marketing campaign- almost as big as for an ICO, too many people do it, so even the smallest marketing mistake would have an impact
The deal breaker for us: too much risk , time and effort for a very small amount

Partnerships

or trying to convince (usually small) established companies to partner up for the technical or marketing development

Pros: if you manage to convince them, you get a strong risk-sharing partner (one of the best gains ever)
Cons: no financial support is given, you have to give up substantial part of equity, some of them even want equity + partial service payment, you spend a lot of time on finding them and building the partnership, you have to give up a lot of your idea before they get convinced
The deal breaker for us: if you have a brilliant idea and you are just scouting for a partner who has more experience in the field than you, you are risking that they steal your idea and implement it themselves - this is at least what happened to us

ICO pros and cons

At one point of time, we’ve also decided to explore the “new kid on the block”- the ICO and here’s what we’ve found:

Pros: Relatively quick, completely equity-free, investors and therefore potential customers from all over the world (except for US and a couple of other countries where ICOs are currently being restricted), relatively big amounts possible- you can get all the funding you need to develop your company at its best for several years ahead
Cons: Complex structure, very few developers have the know-how, immature ecosystem of forums, supporting services etc., tricky situation with taxes and converting cryptocurrencies back to “real” money, your project has to integrate the use of the tokens and blockchain, super risky- no guarantee for success
A deal breaker for us: the maturity of the technology and the ecosystem

*Please note that this is just our opinion based on our experience within the European startup ecosystem, but we still thought it’s worth sharing.

Our choice or why ICO?

We’ve weighed the Pros and Cons for all the above- mentioned funding methods and we’ve decided to go for the ICO. As much as it is high-risk, it is also high-gain. We’ve found a way to integrate the token into our business model and it even opened up a new market for us. Finally, it’s very much about the balance between taking the risk, go “all in” and keep the control of your company and giving up equity against more secure funding and support.

We will reveal more of our ICO journey and findings in the next articles of this weekly series, so stay tuned.

Want to know more about our company and ICO?

Check the startAround.co website for news and updates or join the startAround Telegram discussion and have first hand information from us- the founders.