What is an ICO- Initial Coin Offering ?
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Initial coin offerings
A few years ago, about ICO (Initial Coin Offering) heard only business and IT communities that were engaged in the development or research of new technology or focused on the implementation of promising projects. Recently, this term increasingly enters into the life of ordinary people who are already beginning to understand what cryptocurrencies are and have heard about blockchain and ICO.
ICO is the issue and placement of coins (tokens) by a certain company that plans a new startup. Investors buy coins that are placed at the minimum cost, and then receive dividends from the development of the project or sell them at a higher price on the cryptocurrency exchange. Funds raised from the ICO are implemented by the company to launch a startup and realization of ideas.
ICO vs IPO
IPO is an abbreviation of Initial Public Offering, which implies an initial public offering of shares. The startup sells its securities, using the exchange as an intermediary. This move allows to get a good profit, which will be enough to launch the project. ICO is beginning to replace the IPO, which is a more traditional method of raising funds for a new project.
A significant disadvantage of an IPO is the cost of the procedure. It is very expensive for the project itself, and therefore the price of the IPO is also quite high. If investors doubt the profitability of the future project, they simply will not buy their shares and all costs for the placement of shares will be empty. Preparing of securities for placement requires many months or even years of serious work. In connection with all the above items, conducting IPO is not always cost-effective.
More affordable and cheaper analogue of IPO became ICO. Even an ordinary person, who does not big asset, can invest in the project through the ICO. Usually, tokens cost from a few cents to a couple of dollars.
ICO is associated with the cryptocurrency market, but there are launches of startups now that do not deal with issuing of cryptocurrencies, and at the same time realize their shares through tokens and ICO.
How does it happen? A new project to raise funds issues not securities and shares but digital coins – tokens. Subsequently, tokens can be disposed of as shares. They can be sold at a more favorable price or simply receive income as dividends.
As for cryptocurrency startups, their tokens can be used for payment inside the system or on cryptocurrency exchange. It is very important for ICO to build a new project on the blockchain system. Without this, it will be impossible to release tokens. If the startup is not connected with cryptocurrencies, then it can still raise funds through crowdsale. The main thing is that its work should be based on the blockchain.
ICO for a young company
For young and promising companies crowdfunding is the best option for launching project. It allows opening additional sources of funding and collecting much more than originally planned. ICO provides an opportunity to collect up to several million dollars. Often crowdfunding are using startups in the IT field.
It is necessary to have serious knowledge in the field of modern technologies for ICO, understanding the essence of blockchain work, and how to tie it to the project. The management of the company must realize how the initial placement of coins takes place. This market is practically deprived of an intermediary that is why company uses only internal resources to implement the ICO.
ICO legal aspect
The technical side of crowdfunding is the easiest question. There are many more nuances with legal aspects. It is almost impossible to conduct an ICO in Russia, since there is no legal basis for this. As for the world market, today the main vectors are defined. They are Switzerland, Estonia, Singapore, Canada, the United States and Great Britain.
In the North American region, slightly less than 40% of the total ICO is carried out. There are regularly new projects that do not need to change their jurisdiction. Local companies have great privileges for the implementation of their startups. What cannot be said about companies that are not residents of the US or Canada. The procedure of licensing and obtaining all permits is much more problematic for them.
Great Britain, Estonia and Singapore have a loyal attitude to innovative technologies, in particular, to blockchain and cryptocurrencies.
They allow to freely exercise ICO on its territory for local organizations. Companies with other origin will be subject to additional bureaucratic procedures.
The best option for conducting crowdfunding is Switzerland. This country creates the most comfortable and favorable conditions for the organization of ICO. Some simply follow the steps of the Ethereum platform, while others simply see the objective advantages of carrying out crowdfunding in this jurisdiction. ICO, conducted in Switzerland, is practically devoid of bureaucratic difficulties, regardless of where the company is registered.
The main steps for organizing and conducting an ICO
In order to conduct crowdfunding by involving third-party consultants, it is necessary to have a starting budget of $200- $500.000. If the company can organize ICO on its own, then the necessary amount can be reduced at least twice.
Phase of the development and implementation of such a project consists of several stages:
Formulation of the initial idea;
Gathering a team of professionals;
Market and direct competitors research;
Creation of WhitePaper and others.
To this list can be added an advertising campaign, work with potential investors, creation of channels and communities in social networks and placement of the project on special ICO-resources. After passing all the preparatory moments, you can closely approach to the release of tokens and launch of ICO.
Formulation of the initial idea
First it is important to understand what you should do. For this, it is necessary to develop the main idea and the initial concept. Naturally, as the project will be developed, various changes and improvements may occur in it. But the overall goal must be understood initially.
Many people start to launch their ideas to the masses from the Bitcointalk forum. There is an opportunity to acquaint a lot of people who are interested in crypto and IPO. You will understand whether your idea is in demand, and sometimes users can leave comments that can qualitatively improve and refine the whole concept at an early stage.
Team of professionals
It is impossible to work on a serious project in a small team, so you should immediately look for professionals around the world. The initial concept should be discussed with all key employees, so that people not only understand your idea, but also share its basic principles.
On average, the staff of the new startup comprises 15-30 people. It is necessary to have the content managers, editors, PR and SMM specialists, designers and programmers in the team. Often such projects are collected by specialists from different countries, so each of them should speak in English or define another common language of communication.
Another feature of this stage is the payment for the work done. Usually, when paying for the work, choose one of the following options:
Payment for the work as it is performed or within the specified time;
Pre-sale, the collected money from which goes to pay employees;
A small amount is paid in advance or on the basis of the work done, but the lion’s share is paid by tokens. We also recommend running the Bounty program.
The third option often appears despite the fact that it is the most risky. If the project cannot be fully implemented, then employees risk not receiving payment for their work for several months. But at the same time, it guarantees the maximum interest and involvement of all employees in their positions.
Market and direct competitors research
This process starts at the stage of formation of the main idea of the project. For successful implementation, it is important that the product is in demand. If already this demand is satisfied by the proposal of competitors, then their activity should be analyzed. It is possible that in their work there are certain weaknesses that can be used to their advantage.
If we take into account the ICO projects, we need to study the experience of the most successful companies, which managed to attract the largest amount of investment. A large number of ICO projects are held simultaneously and for a successful fight for investors, one must understand the specifics of the market.
The main document of the project is White Paper. It must be carefully prepared and read. At this stage, it is recommended to involve third-party companies for careful work on the document.
It is important for this document to explain the main points of the project in the most detailed and understandable language. Often investors have little understanding of Blockchain and cryptocurrencies terminology, so there must necessarily be images and diagrams.
In the WhitePaper there should be information about how it all began, getting acquainted with the team, analyzing the market, and how blockchain will work on it, the road map, technical features (simplify the terminology as much as possible), what the investments will go on and so forth.
Preparing and holding an ICO is a complex and rather lengthy process, in the way of which there are a lot of difficulties. When preparing for an ICO, you need to understand that the process can take from a few months to a year or more. Also, you need to have a sufficient financial base, at least to attract third-party consulting agencies and advance payments to employees. The minimum necessary initial budget is $20 000- $50 000.
It is necessary to take into account various factors: the creation of an international company, the choice of jurisdiction, the situation on the market, employee selection and much more. At the same time, the level of risks is always quite high as many ICO projects are struggling for investment. It is important to clearly articulate your goals and remain as open to the public and potential investors as possible.