What Investors Should Know about ICO Best Practices

ICO investment

Launching a successful initial coin offering is not an easy feat. Startups that are looking to raise capital through this innovative new form of fundraising have a long list of things to consider when conducting a token sale.

In this article, you will find a breakdown of the key aspects that startups need to consider when launching an initial coin offering. As an investor, this allows you to check if a token sale in which you are considering investing is following best practices as that will increase the chance of the project becoming a success and its token increasing in value over time.

Best practices are broken down into six key areas.

  1. Product
  2. Team
  3. Technology and Whitepaper
  4. Legal and Compliance
  5. Security
  6. Marketing and Public Relations

Product

First and foremost, when launching a token sale, startups need to ask themselves if they even need a token to begin with and what utility it will have within its platform. Raising money through a token sale just for the sake of raising money is not a good enough reason to launch an initial coin offering.

The startup’s product must need a token for a token sale to make sense. If the same functionality of the product can be achieved with existing cryptocurrencies, for example, then there is little need for a new token.

Furthermore, the startup should have a product ready before the token sale is launched. Simply raising funds for an idea that does not even have a minimum viable product (MVP) will cause the ICO to struggle to raise funds in the current climate of the market and would also be a very risky investment for investors.

Team

Equally as important as the viability of the project’s product is the quality of its team. For a token sale to raise substantial funds, it needs to have a stellar team of entrepreneurs and developers who have a proven track record of executing entrepreneurial projects in the market they are entering.

A successful token sale is usually also advised by leading blockchain experts who support the team with advice on smart contracts, blockchain integration, legal aspects, and public relations. Many of the most successful ICOs have managed to attract industry leaders who, in turn, also provide credence to a project.

Technology and Whitepaper

Ideally, blockchain projects should open-source their code on Github so that it can be inspected by anyone who is interested in doing so. The more active a project’s Github page, the better, as it shows that developers are actively working on it. However, not all projects want to open-source their code for proprietary reasons.

Having said that, a well-written whitepaper that details all key aspect of the project, as well as the technology behind it, is an absolute must for a token sale to be successful. A whitepaper should include information on the problem that the project is aiming to solve, the size of the market it is entering, the token business model, the project’s product, use of funds, a detailed development roadmap, and information about the team.

Legal and Compliance

Legal aspects have become increasingly important for initial coin offerings since most major financial regulators have begun issuing regulations on token sales. Hence, receiving adequate legal advice and ensuring that all actions of the project comply with laws in all countries where the ICO is being marketed is of utmost importance for a token sale to succeed.

Having a KYC and AML framework in place as well as a corporate governance structure that ensures all funds are being dealt with accordingly are also part of ICO best practices. If these legal and compliance matters have not been adequately addressed, that is a big sign that investors should most likely steer clear of the project.

Security

The unfortunate reality is that the cryptocurrency market is a hotbed for cybercrime. The ICO market is also not immune from that. Hence, having adequate cybersecurity measures in place, such as a secure website, audited smart contract code, and 24/7 monitoring of the ICO and all communication channels is another key aspect of ICO best practices.

Marketing and Public Relations

Finally, for a token sale to be successful, the project needs to invest in marketing and public relations. Appearing in all major blockchain news publications is a must for a project to be noticed, and communicating openly on platforms such as Twitter, the BitcoinTalk forum, and Telegram is important to engage the broader cryptocurrency community to build trust and to entice them to invest in the token sale.

Professionally run bounty and referral programs, regular blog posts or YouTube videos about the progress of the token sale, as well as other media appearances can often make the difference between hitting the crowdsale target and missing it by millions.

Novatron Capital’s David Sui on Launching a Successful ICO

ICO investmentOn the topic of best practices for launching ICOs, Bitcoin Market Journal spoke with David Siu, CEO of blockchain incubator and investment firm Novatron Capital. He told BMJ:

“The first thing is you must have the platform live before you do a token sale. […] Not only the minimum viable product (MVP) but a product where the users are actually able to do what the whitepaper says. That has to be in place before you do a token sale.” 

Siu noted that the quality of the team and how likely it is that it will be able to execute on its mission is also a very key factor for both the ICO itself and the investors who are considering the project. Cybersecurity was also flagged by Siu as extremely important since hacking is a big issue for token sales.

Novatron Capital’s “ensures that it uses three or four multi-signature wallets kept in different physical locations,” for the ICOs it launches. Having a corporate governance structure in place that ensures that no one can run away with funds is also vital for any startup conducting a token sale.

Having a secure website and monitoring all social media channels 24/7 to reduce the chance of someone fraudulently posting an Ethereum address and asking people to send Ethereum to that address is also part of best practices.

“Also, we look very strongly at the legal aspect of it so that we are legally compliant,” Siu adds. Ensuring you comply with laws of your startup’s local jurisdiction as well as putting SAFTs in place to allow US investors to take part are highly important. Furthermore, putting Know-Your-Customer (KYC) measures into place to ensure you are not dealing with non-accredited investors for SAFT agreements is essential.

On the marketing side, setting up bounty programs, referral programs, investing in digital marketing, and setting up pre-sales to lure in more investors early on are also part of best practices for conducting a token sale.

If you are analyzing an initial coin offering whose team is following the best practices discussed in this article, then you have stumbled across a professionally run project that has a chance of potentially turning into a lucrative investment.

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