What are Initial Coin Offerings? These Are the Top Three Things You Should Know

Written by Henry Young. Posted in World Business

Initial Coin Offerings, or ICOs, have become the go-to fundraising vehicle for emerging startups introducing solutions that are fueled by cryptocurrencies. According to Investopedia, ICOs are:

An unregulated means by which funds are raised for a new cryptocurrency venture. An initial coin offering is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists and banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange…for other cryptocurrencies.

While awareness for ICOs has grown and crossed over into the mainstream, there are still many misconceptions clouding this fundraising methodology. If you are considering launching an ICO for your own up-and-coming venture, here are three things you must keep in mind before committing to a coin offering.

The rules DO apply.

As previously stated in Investopedia’s definition, ICOs are not subject to the same regulation as venture capitalist funding. Because this brand  of financing is still relatively new, hard and fast rules have not been determined. However, government agencies, including the SEC are exploring regulatory frameworks which would protect potential investors from falling prey to the type of ICO scams that we’ve seen in the past.

In the meantime, the SEC has begun prosecuting ICOs that are not compliant with Know Your Customer standard. So if you want to launch an ICO without experiencing the wrath of the EC, and subsequent backlash from the public and investors, it’s in your best to familiarize yourself with Know Your Customer requirements.

Additionally, the rules and regulations vary by country. Cryptovest compiled a handy regulatory breakdown that makes it easy for investors across the globe to understand what the potential implications are for selling coins to investors across various countries.

Most ICOs fail.

ICOs might seem like a magical solution to all of your fundraising woes. But the reality is, most ICOs are not successful. As of February 2018, nearly 46% of the previous year’s ICOs had already failed. However, these high failure rates are not enough to dissuade new crypto ventures from tossing their hats in the coin offering ring.

While no one can predict, with 100 percent accuracy, the ultimate fate of a company, you can learn from the past mistakes of other ICOs to avoid the same pitfalls. ICO Reports, review sites, and databases include project specifications of current and past sales. Many failed sales result from teams not thoroughly understanding the market — even with a brilliant idea, if there is very little use for a solution, savvy investors will remain unconvinced. Additionally, flimsy websites and social media accounts, as well as few or no advisors, also raises red flags and may keep a project from reaching its goal during its sale period.

Community Is everything.

Community is key to launching a successful sale. Much of the growth in this space starts on forums and social media platforms. Across those outlets, crypto followers and potential buyers share their evaluations of up-and-coming projects and glean insights from one another. Sparking conversations, engaging with crypto enthusiasts, and answering audience questions in real-time help new ventures convert skeptical audiences into project evangelists.

The more influencers are talking about your technology and sale, the more likely investors are to given you a second chance and, possibly, take a leap of faith and back your organization.

Failing to educate yourself on ICO best practices and common points of failure will likely result in investors viewing your offering with suspicion. With so many offerings on the market,  investors will never feel as though they have to review your listing, and an amateur offering may be difficult to recover from.