ICOs are all the rage at the moment. It´s about disruptive financing for disruptive technologies. However, since the financial stakes are high (one project raised 153 million USD a few days ago...), disruptors should keep an eye at mitigating all risks including legal ones.
What is the potential problem from a legal/compliance viewpoint?
At first sight, an ICO campaign looks like "Kickstarter on steroids". On Kickstarter, you get rewards for supporting a project, which are either symbolic (thank-you email or similar), or have some utility and value in connection with the project itself (prototype of a new product being designed, etc). Generally speaking, there is no expectation that your Kickstarter reward will grow in value over time and you will make a profit by reselling it. Which implies that rewards will not be treated like securities by the SEC or other regulators, so they can be sold without KYC/AML strings attached.
The problem with ICOs is that, on the contrary, the "rewards" being awarded to those who back the project are usually ERC20-compliant tokens, which backers are likely to resell on a marketplace such as Poloniex as soon as they are given the possibility to do it. Given current market conditions, backers have a very realistic expectation to achieve a significant capital gain when reselling their tokens. If this profit expectation is the dominant motivation for "backing" the project, then tokens are likely to be regarded as securities by regulators, which implies in most jurisdictions that they cannot be sold "informally" to the general public.
Companies setting up ICOs have two tools to mitigate the "security" risk:
1) Demonstrate that the token has "utility" in the context of the project (e.g. it is used to settle payments for products and services provided by the project),
2) Set up the ICO out of a jurisdiction where regulators have spell out clearly the rules of the game, i.e. the specifics of what makes tokens to be assimilated to "commodities" instead of "securities".
An interesting debate on these topics took place last month in New York in the context of Consensus 2017.
You can watch the video recording of the full debate here: