Our team at True North has a mission to drive FinTech forward. One of the most exciting components of FinTech is the usage of blockchain, especially within cryptocurrency and initial coin offerings (ICOs).
Recently we were fortunate to have a conversation with the cofounders of Blockstate, Leo Cheng and Chris Chan. Blockstate (based in San Francisco) is an ICO advisory firm, providing strategic advice and execution to founders and ICO issuers navigating the ICO markets. They were kind enough to share their thoughts on what factors make some ICOs successful and others not. They also go into detail into their four ICO Success Pillars along with a framework for evaluating an ICO’s potential for success.
Enter Leo & Chris
ICOs have revolutionized the fundraising landscape since its inception. Authored in late 2015, the ERC20 standard laid the groundwork for ICOs by enabling basic functionality for transferring tokens. Through the end of November 2017, $4 billion USD of funding was raised via the ICO process. Innovative entrepreneurs are increasingly choosing this new, non-dilutive financing option over traditional equity financing.
The team at Blockstate began when two friends joined as cryptoasset investors in early 2017. We soon noticed the need for credible, ethical, and knowledgeable professional services in the ICO market. We built Blockstate to provide the best advice possible to founders and ICO issuers navigating the ICO markets and integrating blockchain technology. Our role is much like a sherpa – we provide the support and assistance our clients need through the ICO journey.
ICO Success Pillars
The Blockstate ICO Success Pillars consist of Marketing, Token Economics, Team, and Product. The Team and Product aspects include the same qualities that investors of all businesses consider – a team with a proven track record of success and a product that fits a real need in the marketplace. Marketing and Token Economics refer to details that are more domain-specific to the cryptoassets world, while still following the same frameworks.
Many token issuers believe that ICO suitability and process should be similar to the traditional IPO process. While the ICO and IPO process share similarities, the decentralized nature of ICOs is a fundamental difference between them. As a result, this decentralized market lacks the gatekeepers and regulation (e.g. investment banks) who traditionally lend credibility to partners and advisors. Marketing ICOs should not be much different than marketing any other product, service, or asset, but the means by which successful ICOs have built awareness and credibility with cryptoassets investors are different from mainstream channels. Information flow in the cryptoassets world largely exist in social media (Twitter, Facebook), internet forums (Reddit, Bitcointalk), and chat groups (Telegram, Facebook, Discord, Slack, Telegram, WeChat, Kakao, etc.). Influencers in this world leverage Twitter, Youtube, and private chat groups to communicate with their followers. The investment analyst community is highly-fragmented across several ICO rating/listing sites, led by Smith & Crown. Communications with cryptoasset investors often require brutal transparency, both to develop trust as well as to differentiate from the many unreliable, poorly-organized ICOs. Lastly, the cryptoasset world evolves very quickly. ICO issuers need to be agile about both making the right changes as well as communicating these changes effectively as positive signals.
Launching a successful ICO involves both creating a strong monetary policy that leads to the long-term success of the project, as well as distributing the tokens fairly across all stakeholders in a way that maximizes the network value of the project. A strong monetary policy can be achieved by designing the proper economic incentives to ensure that the ecosystem of stakeholders are properly motivated toward the success of the project. In the long-term, a well-designed cryptoasset system should enable the project to exist and thrive absent its creator. Also critical to the success of an ICO is a distribution allocation and schedule that best allow for network value growth. Fair financial incentives in the distribution plans allow the founding team and advisors to build out the network, partners to participate in the network, and users to derive utility on the network. In this new decentralized world, EVERYONE who adds value to the system can and should see a financial benefit.
Much like traditional equity investors, cryptoasset investors also evaluate teams in the same way. They look for an experienced, talented team led by visionary founders, with a proven track record of success in their field. Although subject matter expertise is valuable, a team with a technical lead who has experience building a protocol, or in cryptography specifically will often have an advantage. A strong group of early investors and advisors also make the team more credible. More so in the crypto world than traditional investors, strong social media presence across LinkedIn, Twitter, Reddit and other channels are directly tied to credibility. Additionally, successful ICOs also feature teams of community managers across the globe, fostering and engaging supporters in each major market with localized content through relevant social media channels.
The product or service that a team provides should address all basic product market fit around traditional frameworks of 3C’s (Company, Competitors, Customers) and 4P’s (Price, Product, Placement, Promotion) in a market segment that features a large addressable market with strong growth potentials. While it is certainly possible to raise tens of millions of dollars based simply on a whitepaper, the closer a project is to a generally available product with large, existing user base, the better. Successful ICOs often demonstrated their capabilities on a testnet, or discuss private beta or public betas, with code accessible on Github.
Fundamentally, launching an ICO is not very different from the traditional IPO model. However, many nuances do exist in the cryptoassets world that makes it easy to miss what in retrospect would be obvious. The reality is that most ICO issuers are doing it for the first time. Pattern matching best practices increases chance of success while reducing time spent thrashing in this ever-evolving process.