A Guide on How To ICO

So, what is an ICO?

Initial Coin Offering (ICO) enables funding of projects through the sale of tokens or cryptocoins, which are similar to shares of a company, though usually without equity being exchanged. ICOs will change the way startups raise money.

Investors and supporters of the project can purchase them through an Initial Public Offering (IPO) transaction with fiat (say, USD or Euro) or cryptocurrencies (like Ethereum). An ICO usually sets a minimum goal for the fundraise and a period of time to reach that goal — not unlike a Kickstarter.

If the funds requirements are met within the specified timeframe, the money raised is used to fund the project and the company can distribute tokens to investors that can be traded on the public cryptocurrency exchanges, like Poloniex or Gemini.

Many people in the blockchain community think that ICOs are a long-awaited solution for non-profit foundations to raise capital, especially if they want to build open-source software. Such is the case of Ethereum ICO, a decentralized application platform based on the blockchain. Ethereum raised $18 million in its original 2014 crowdsale, the largest-ever at the time, and the holders of Ethereum (ETH for short) have realized major appreciation of their holdings as the coin has increased in value from less than $4 to over $250 at time of this writing.

Usually, the team making the ICO sets a date for the token sale. Then, in most cases, a portion — say 5 to 10% of the total coins or tokens (ITO)  are set aside for the development team to sell as a mean to continue engineering the project.

The structure can change according to the type of project that the ICO is supporting and the purpose of the vehicle used for the ICO.

How to set up and create your own ICO?

This grows everyday but several services are offering the necessary back-end infrastructure to create your ICO and then manage the future transactions that may happen freely on the different exchanges.

At the beginning spending time on the legal aspects of your ICO, the white paper and the financial details is the most important. If you are collecting money from US investors you will have to make sure they are accredited investors.

"As weird as it can sound, you don’t need a blockchain to issue or enable the trading of your coins. Many people just set-up a website, put their Bitcoin or Ethereum addresses and start to collect funds."— Pavel Kravchenko, an expert cryptographer

Among the services that I am able to list today:

Argon Group, a strategic investment banking and financial advisory services firm was in charge for the ICO of Blockchain Capital. They take care of the compliance and the KYC (Know Your Customer) for collecting funds.

Tokenmarket.net seems to have a packaged offering for ICOs, they are new on the market but seem to have a good understanding of the challenges while providing solutions for KYC and marketing your token.

Otonomos.com is also setting up a special offering for ICOs. They can provide a non-profit vehicle similar to what Etherum created in Switzerland but this time in Singapore.

Vanbex Group, based in Vancouver is another option. They have a long experience in ICOs and provide a full service from the KYC integration, token development, campaign marketing and strategy, technical audit and documentation, legal guidance up to investor relations. They made for example the ICOs for FirstBlood and Factom.

OpenLedger.info - This is perhaps my favorite. They walk you through the ICO process and pre-ICO you on OpenLedger.io They are also omnipresent at all world conferences and events. Their CEO @Ronny Boesing is hands on. I personally only invest in coins they vet first as they have had many successful launches and their own currency ecosystem for secure and personalized investing and spending. They are also by faaaaaaar the most user friendly experience and wallet connected to an exchange. They also collaborate with @Steemit. Take note @steemians and @beyondbitcoin

How to Store Coins

Often organizations control coins in a cold storage, meaning that you have a login and password to see and control the balance but it is actually not a coin in a blockchain. In that case the trading mostly happens on centralized exchanges so the coins are not moved at all.

They will often provide the KYC for collecting the funds of the original coin offering but won’t be able to do the KYC once the coins are exchanged on a public exchange.

Ethereum.org is most probably the most popular and most reliable solution to date once you need to have your coins traded. Made to create smart contract, Ethereum has a whole solution to organize a crowed sale to sell tokens in a blockchain organization.

Lightning Network is another option to consider in the future for the trading of your tokens, but it is not available currently. While transaction can happen on this top layer the settlement can then be recorded on the Bitcoin blockchain.

If you don’t want your transactions costs to be dependent on a public blockchain then you will have to implement your own blockchain.

What determines the price of your coins?

You can decide the amount you are looking to raise and the number of coins or tokens that will be emitted. This is what will determine the initial price of your coins.

Then, once they begin trading on cryptocurrency exchanges, the price will obey the laws of supply and demand on the free market. Like any other traded stock it will change according to relevant project information, trust in the team, and reactions of the project’s original and incoming investors.

What are the costs linked to operating your own ICO?

Apart from the legal fees linked to the registration of your business and the legal and financial advices linked to your ICO, the cost of operating an ICO on Ethereum (for example) is trivial.

It involves setting up the characteristics of your token (Ecr20) by creating a smart contract and then paying the registration fees into the blockchain each time a transaction happens.

Most of the costs will be linked to the marketing of your ICO to investors. Expect to spend at least $50k to a $100k on brand marketing, online marketing, PR, and communication. Most serious projects have some sort of pre-ICO funding to finance the marketing costs linked to the launch of an ICO.

Steemit.com - My other favorite. I'm sure there are whales out there @steemit that would be happy to endorse your coins and would get all the right info to all the right people. If your one of them please feel free to comment below so people know who you are. It is also a great platform for advice.

Where can you market your ICO?

Most ICOs should be marketed to achieve your fundraising goal in the shortest amount of time.

21.co can help you reach out to digital currency investors and will charge $10 per reply.

Partnerships with existing exchanges such as Openledger.io is also a way to have your ICO being announced and marketed to the crypto currencies and blockchain communities.

Among the most read online publications and forums to announce your ICO: Blockchain.info, Coindesk, Cointelegraph, LTBNetwork, BitcoinMagazine, tokenmarket.net, ico365 (China), Wings, Icocountdown
The most used platform for trading coins are: Kraken, Poloniex, Bitfinex, Bitstamp

Some VC firms only invest in coins like Fenbushi Capital from China or for example the famous Tyler Howard Winklevoss, creating fewer compliance issues and fewer time constraints to invest. On the pre-sale, they can benefit from important discounts and — in addition — when they are traded, tokens provide almost immediate liquidity.

Who already launched an ICO?

According to the research firm Smith and Crown, ICOs raised $27.6 million in the first two weeks of May alone.

The BAT ICO launched by Brave, a web browser founded by Mozilla co-founder Brendan Eich.
It completed an initial coin offering (ICO) on May 31st 2017 that generated about $35 million and was sold out within blocks under 30 seconds. Most of the sale happened through the sale of tokens using Ethereum for payments.

Storj Labs, a Peer-to-Peer Cloud Storage Network, launches STORJ
They raised money through an ICO on May 19th. The ICO hit the $20 million mark just 6 hours after the books opened.

OpenLedger.info (openledger.io) has launched way to many to list but you can see theirs here: http://bit.ly/2sq1r15

Blockchain Capital is an investment fund
They invest in entrepreneurs driving innovation based on Blockchain technology. They closed $10 million in 6 hours on May 10th.

Gnosis, a platform for the next generation of prediction market applications.
Gnosis held its ICO at the end of April and sold 5% of the project’s tokens for a combined $12m. The tokens sold in 15 minutes valuing the whole company at approximately $300 million.

It was considered a failed ICO as the tokens were supposed to be sold using a Dutch auction meaning that the price would be reduced until a buyer is found but the FOMO won showing how irrational the market currently is.

To stay aware of new coming ICOs there is even a new chat bot from @chatfuel called @cryptobot, available on Facebook Messenger.

What do you need to know prior to launching your own ICO?

It is still an unregulated space and you must be very cautious to make sure your KYC (Know Your Customer) is done properly.

Once the regulators like the SEC realize that an ICO enables any company to trade their stock freely, it is mostly possible that traditional stock exchanges will be adopting the same techniques for any company and then start regulating the space.

At the end, good governance remains probably the best security for investors to ensure the profitability and the growing value of the marketed tokens.

Currently, most teams outside US choose to block the participation for US residents to avoid regulatory issues.
Current ICOs only sell app coins, utility tokens or comparable instruments that have in-game currency value. Any profit is a speculative value. That’s a way to get around the Howey test.— Mikko Ohtamaa CTO of Tokenmarket

Dividend paying ICOs are coming though, but they will be securities which will be regulated. Polybius, a regulated bank for the digital generation, just launched an ICO with tokens that include the right to receive 20% of profits.

Travis Scher, an associate with Digital Currency Group mentions in his post on ICOs:

Four issues that make investing in new tokens — at least for now — very unappealing compared to traditional VC investing:

1. regulatory uncertainty

2. high valuations/over-capitalization

3. lack of controls

4. lack of business use cases

How Do You Spot an ICO Scam?

Like any industry, there’s the potential for scams in the world of ICOs. There’s no foolproof way to detect scams 100% of the time. However, there are certain red flags you can watch for, including:

Anonymous Developers: Honest companies are transparent about their executives and employees.

Lack of an Escrow Wallet: Is the money from the ICO going directly to the developers? What prevents them from running away with the money after it’s all raised? An escrow wallet gives investors an additional level of protection.

Unclear or Unrealistic Goals: “We want to be the next Bitcoin” is not an unrealistic business plan or strategy. “By April 2018 we plan to publicly launch our blockchain platform” is better. Make sure your chosen ICO is backed by realistic, clear goals.

Lack of Transparency: Is there contact information attached to the ICO? Do you know the address of the company? Is there any signs of work in progress? Is there a working blockchain build? Has the company released snippets of their code? Is there any evidence of real work taking place behind the scenes? the more transparency there is, the better off you’ll be.

By following the above rules, you can avoid ICO scams while still contributing to ICOs that have the best possible chance of success.

What Prevents the Company from Running Away with All of the Money?

One of the nice parts about IPOs is that companies need to file paperwork and regulatory documents before their IPO. This protects individual investors.

In the world of ICO projects, however, there are little to no guarantees that your money won’t disappear. You’re giving money to a company over the internet – and in many cases, those companies are new startups with limited transparency.

Fortunately, ICO project leaders are well-aware of these perceived security problems. They understand investors may be hesitant. That’s why reputable ICO projects will impose restrictions on themselves to provide better trust and transparency to contributors.

Some popular restrictions and regulations in the ICO world include:

Storing the contributions of members in an escrow wallet; in order to access the funds stored in the escrow wallet, the owners need private keys. One of those private keys is owned by a trusted third party with no involvement in the project development. In other words, the funds of investors are protected by a neutral third party.

Companies may establish a legal framework between themselves and contributors, including a set of terms and conditions for the ICO.

Companies will provide a great deal of transparency, in terms of their location, members, founders, executives, business plan, roadmap, etc.

Ultimately, ICOs vary widely in terms of their trustworthiness, reputability, and future success. It’s up to individual investors to spot ICO scams and protect their investments.

I believe all these points are valid. What matters the most in my point of view as a founder is the freedom that ICOs can provide and its flexibility as a tool. Like any innovation it will require a lot of iterations before ICOs can prove to be the new way for funding startups and projects.

In the meantime it is freeing up creativity and more interesting initiatives will be started using ICOs.

Some content original, some not:
https://medium.com/startup-grind/hack-your-funding-with-an-initial-coin-offering-2a2a0614bddf
https://bitcoinexchangeguide.com/initial-coin-offering