Initial Coin Offerings (ICO) have been gaining huge momentum in the cryptocurrency space, becoming increasingly popular among investors trying to get a piece of what might become the next big thing. For example, just last month Golem conducted an ICO which generated $8.6 million in only 20 minutes.
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A few weeks earlier, ICONOMI raised over $10 million during its ICO, making it the third largest crowdsale in history – behind The DAO and Ethereum. Often explained as an ‘Uber for Fund Management‘, ICONOMI is a platform for blockchains and cryptocurrencies, providing tools and easy-to-use infrastructure for users to develop their own passive or active-managed funds of cryptocurrencies. It also offers ICO advice and support to other companies.
But despite the many successes of this alternative form of crowdsale, many are still wondering what the technicalities are behind them, how ICOs are conducted, how they are gaining so much traction, and what regulations apply, if any. We asked ICONOMI co-founder Jani Valjavec for his views on this subject.
Why did ICONOMI conduct an ICO, and what was the process like?
We had experience with traditional Venture Capital raising in the past, but we decided to do an ICO for several reasons. Firstly, it was way faster. Secondly, the end results weren’t binary: VCs say yes or no. Instead, in an ICO the markets decide how worthwhile the investment is, if at all, and the process is finished in around a month. On the other hand it takes at least 6 months to do a traditional capital raise, and at least an additional 6 months for a “Series A” raise. In both cases, raised capital typically equates to an 18-month runway for the startup. When you think about it, that means that with the traditional way, founders are spending 1/3 of their time just raising funds. In my opinion, it’s far better to focus on the product, as a product with that much extra time and energy spent in development is bound to be improved, more mature, and get to market faster.
ICONOMI had over 3500 investors in our raise of over $10 million USD. They have become so much more than just investors: they’re supporters. They are actively getting in touch with us and seeing how they can help us succeed. Today, we have a built-in base of users that will help us when our products/services are out. Throughout the process, we’ve been completely transparent. During the ICO, we barely slept because we spent the majority of our time answering community questions, providing regular updates and evolving to investor feedback. Typically, VCs ask just a few difficult questions of companies aiming to raise capital, and a good startup CEO will know how to respond to these queries.
But during our ICO, absolutely everything about ICONOMI was asked, and we needed to know how to respond immediately. We had to answer everything from “How does this technology work?” to “How are they going to keep the assets safe?” to “How many private keys will there be and who will hold the keys?” to “What will the product look like?” to “When will the token get out and what exchanges will it be traded on?”
Why are companies coming to ICONOMI to get advice?
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ICONOMI spent an enormous amount of time, effort, resources and developer hours building our platform. It took us over three months to build something that will help many people and provide an invaluable service to the growing cryptocurrency community. Unlike other ICOs, ICONOMI built a platform before the ICO was conducted, enhancing credibility and legitimacy.
We managed to build a great platform that is going to be used by many individuals and companies in the future. The key is to focus on content, community feedback, and transparency. Recently, ICONOMI has been providing advice to other companies looking to raise via ICO because we were successful ourselves and we want the best companies in the space to also succeed.
How should one NOT conduct an ICO?
In order to conduct a successful ICO, the company and its executives need to be entirely transparent leading up to, during, and after the process. There needs to be a reputable team in place, and those individuals need to be extremely knowledgeable of the entire system. They need to be dedicated thought leaders and subject matter experts, representing the company well. More importantly, they need to be open, honest, and transparent, responding to community queries and concerns whenever they arise; one must always be thinking of how to maximize investor protection.
We also believe that there should also be a minimum and maximum threshold for amounts raised during ICOs to meet specified business plans, otherwise companies may overextend. It’s possible that investors could lose confidence in the founder’s ability to properly spend a seemingly unlimited amount of money. For every successful business, particularly in the blockchain and cryptocurrency space, you need three things; 1) a technical understanding, 2) business development understanding and 3) marketing/sales understanding. Some companies just know the technical side, so we are helping others to prepare by fully onboarding them with all aspects to generate a more successful ICO.
Which ICOs have been successful to you?
By the very nature of how the “ICONOMI.performance” works, it’s our job to conduct due diligence on tokens and to vet ICOs prior to launch and to analyze ICOs post-event. We were impressed by the Golem and Lisk ICOs. On November 11, Golem’s ICO generated 820,000 ether ($8.6 million USD) in only 20 minutes. It went incredibly smoothly because they were talking to the community for at least two months prior to their ICO, listening to feedback, presenting ideas, fixing mistakes, and evolving with the community’s interest.
Lisk attracted over $5 million USD in March 2016 and was the most successful crowdfund in German history. CEO Max Kordek put together a great team, they advertised well, and they wrote a great whitepaper, but investors look to company leadership for guidance. In this case, they invested in Max’s vision and ability as an excellent community manager with an impeccable reputation for integrity.
Do you think there should be a timeframe set between when the ICO is conducted and the tokens distributed?
I don’t think so, no. The only problem I see here is that the company must ensure the tokens will be tradable on exchanges once they are distributed to ensure the asset remains liquid for their investors. We believe the ideal ICO should have the following attributes:
- A team with proven ability to execute
- Business viability check
- Technology check
- Efficient use of funds and business-based thresholds for minimum and maximum raise
- A defined legal framework
- Scam protection
- A transparent ICO process
- Controlled release of funds
- Delayed founder liquidity