Blockchain industry is at the beginning of its journey, and a thousand roads are ahead of us, that will make the pioneers into market leaders. A lot of you definitely have a multitude of ideas, that you could make into reality. But you have no idea where to start, and certainly one of the main questions is how to attract the funds to execute your project? Most of the blockchain projects are launched these days by having an ICO.
What is an ICO?
ICO is an IPO analogue for cryptocurrency economy. If the more familiar IPO is an initial public offering on an exchange in traditional economy, than ICO (Initial Coin Offering) is a process of issuing your own tokens (which are an analogue of shares in a traditional financial market, with some unique qualities) and offering them on a cryptocurrency exchange.
For a successful ICO you need a strong team, that has a reputation on the market, or a product that is close enough for launch. But what can you do if you have neither? Such a model is not ideal for investors.
In my previous post I wrote a plan, that would be useful to concentrate and understand what you should focus on every particular phase of the project implementation. In this post I would like to share with you a concept of a continuous ICO, using which you can get the financing almost from the start.
Basic principles
There are several key principles, that were used in design of Steem, and can be successfully used in the concept of continuous ICO.
The most important principle is that of a fair share. If someone is participating in creation of some venture, then they should receive an equity share in it. This principle is usable in all the startups, when they distribute shares at the start of the campaign, and during the increases in capitalization.
Second principle: all of the types of investment are equal: labor and money. Time spent working on the project is equally valuable as the money invested into the project. This concept of sweat equity was problematic to implement before the wide spread of blockchain and cryptocurrencies.
Mechanics
- It is important to have strict criteria of finishing the pre-ICO. If we follow the plan, then we can use the launch of MVP or finished product ready for scaling as a criteria for finishing;
- Then we pick a time interval (1 week, or 1 month) and start issuing tokens weekly, or monthly;
- Emission is split 50/50:
- Half of the emission (500 tokens) goes to investors, that committed funds this week, in proportion to their investment amount;
- 50% of tokens, and investor funds go into the project development fund. The team manages those funds.
- A report period is set. Monthly report, for example. The team publishes the report about their activity. The report details what was done and by whom, and what sort of reward they get in form of tokens and/or money;
- Other than development the funds could be spent on marketing, community bounties and other things;
- Pre-ICO ends after reaching the set criteria;
- A full ICO is held,and part of the ICO tokens are earmarked and distributed among pre-ICO participants in proportion to their stake (contribution to the development of the project at the early stage).
Advantages
- This approach allows to invest into the project at an early stages, that have the best returns. There are less investors at the early stage, that means that you can get more tokens for every invested “dollar”;
- Allows investors to lower risks, by spreading their investment over the period of the development, monitor the progress and successes of the team, and make decisions about further investments;
- Regular distribution of tokens incentivises every team member to work more, to do more for the project, which moves the project towards it set goals;
- Team can work comfortably with lower financing, and keep more of their tokens, or with higher financing, and receiving funds for their work and keeping more tokens for further development;
- By the time that the full ICO happens the project has a viable product and a team that proven that they can do things, and a community interested in the project.
Resume
This way the pre-ICO concept motivates and supports the team to create the best possible product in foreseeable timeframe, and gives more confidence to the investor, because they invest into real working project with strong team and transparent accounting, instead of just an idea.
