Full Guide to launching an Initial Token Offering (ITO)

Step by Step guide to crowdfund your startup by launching a token sale

This is a smart guide on how to fund your startup by launching an Initial Token Offering, this also can be named ICO — Initial Coin Offering, also sometimes called a token sale, crowd sale, tokenization. In this guide we will dive deeper into when should you launch an ITO, and what goes into launching an ITO.

The blockchain industry isn’t relatively new, but in the last few years, we have started dive deep into its full potential. With each new crowdfunding project, teams are learning best practices on what to do and what not to do. We are bringing you a whole step by step process that has been perfected throughout the years.

Milestones of launching an ITO

    • Pre-Planning
    • Planning (Token, Whitepaper, Website, Communication, etc)
    • Before the ITO
    • After the ITO
    • Running the project post-ITO.

Pre-planning (Idea phase)

When Entrepreneurs are seeking to find right investors for their projects, they will probably flirt with following ideas, get funding from “friends, family, fools”, Angel Investors, Incubator, Venture Capital Firm, a crowdfunding campaign on Indiegogo/Kickstarter.
Getting funding to the company is sometimes like an oxygen, so startup can reach their goals. Not reaching the right people who actually care and would like to invest in the project is one of the main reasons why some brilliant ideas that could have changed millions or if not billions of lives are sitting somewhere in the drawer and collecting dust.  Before starting an ITO you need to answer the following questions. Besides the

Getting started with planning your funding campaign

    • Why do you need funding?
    • Where can you get the funding from?
    • What are you willing to give in return to the investors?
    • Why should investors give you money for your idea?
    • How much do you need to raise?
      • What’s the minimum amount that you need to raise so you can finish your MVP/scale your business? (soft cap)
      • What’s the amount you would prefer to raise, so you can 100% focus on building your startup. (hard cap)
    • Are you sure you want to do an ITO?

Tokenizing your company, assets, idea.

    • Is your business model viable?
    • Can you describe your business model to your parents in a few sentences so they would understand?
    • What is the purpose of the token?
      • Is it Security Token or Utility Token?
        • If it’s utility token: What function or utility does it perform?

Ask yourself: “Why do we need to launch an ITO?”

An ITO is fundamentally different than raising money through VC’s or other traditional means. Blockchain technology is ripping down the conventional walls of how people could access capital, by enabling more people to get involved in projects that are making difference. Previously if someone wanted to invest in a startup before it went public, they had to know the founder, be wealthy enough to become an Angel investor, or to afford to invest in a venture fund. Not to mention you had to be in the right place at the right time, to get the information or you had to be a citizen in the right country. By breaking down these barriers, this allows people across the globe to invest in ideas that are in earlier stages, before having to wait on company launching on the public stock market. On the global scale, decentralized crowdfunding has opened up a new entry point for the micro investors, who previously would never have had an opportunity to back a project they believed in.

By launching an ITO, you are becoming a public company on day one. You’ll have a huge community of investors you’ll need to manage post-ITO, and you need to make sure you have a necessary infrastructure in place

Here are a few things to keep in mind while thinking through whether you should launch an ITO:

    • Like every public company, everything you do and all the actions you take will be reflected in the price of the token.
    • Your team will get bombarded non-stop, multiple times a day, with questions about the price of your token.
    • You’ll need to be an international company from day one.
    • All of your internal team discussions will likely be pushed publicly.
    • There will be great stress in trying to build things that are long-term valuable vs. short-term valuable.
    • You have to be congruent and as transparent as possible with all the people throughout the community. That said, people aren’t stupid, and they will find out anything that isn’t there
    • Be careful what you promise to your community.

The decentralized crowdfunding market is maturing, there have been some truly amazing projects and also tons of bad apples, that should have never gotten funding in the first place. Dumb money is becoming smart money and investors are looking for more mature projects to invest their money in. This means that the rules of funding are similar to more traditional startup funding. It’s harder to raise “seed money” for just an idea. The probability is high that if you are looking to raise more than $5M you probably need a working MVP (Minimum Viable Product).

Where’s the Venture Capital industry heading towards and how’s blockchain going to improve it?

 

How to plan your ITO?

The core components in the planning stage are deciding on the offering, whitepaper, token structure, legal, Landing page, Secure Investor Platform, marketing, sales, and setting up an infrastructure for communication.

Considerations:

    • Token allocation
      • What % are you giving to your team, investors, partners, reserving for the ecosystem, reserving for the company/foundation?
    • Funding allocation
      • Where will the money that you raise go to? You should have an annual budget for the next 5 years.
    • Funding Stages:
      • Stage 1: Private sale
        • This is sometimes used to give an opportunity to larger investors to get involved, who has previously shown interest to the project.
      • Stage 2: Pre-sale
        • pre-sale can be used as both social proof + getting tokens to the people who you most want to align in your ecosystem.
      • Stage 3: Public sale
        • The main public sale, where people who haven’t reacted yet, has the opportunity to back the project before it goes to the open market.
      • Stage 4: Publicly available on exchanges
    • Will you be offering rewards for getting in early like “staged pricing?”

Usually, the pricing of the token increases, due to the risk, as people who get involved first in the project are paying a lower price, but their risk is significantly higher.

How to price different stages Example:

  • Presale: 30 000 000 tokens/ $0.3 per token + 30% bonus/01 Jun – 21 Jun
  • Pre-ICO: 90 000 000 tokens/ $0.4 per token + 10% Bonus /21 Jun – 14 Jul
  • ICO: 150 000 000 tokens/ $0.6 per token (no bonus) / 15 Jul – 07 Aug

 

How to set up an ITO?

    • What currencies will you accept? (BTC, ETH, USD, EUR, anything else?)
    • Do you want to start off by Whitelisting your backers? (It’s one way to start of a crowdfunding campaign, by collecting people who are interested in your project and would like to participate in it when it’s launched.
    • Get a KYC service that provides background checks, can identify frauds, and is seamless to use for your investors.

Read also: the main reason why ICO funded companies are having trouble opening their bank accounts. What’s the solution?

The main reason why ICO funded companies are having trouble opening their bank accounts. What’s the solution?

    • What’s the timeline of your campaign? 1 month, 2 months, 6 months? On average the funding campaign length varies from 1 - 6 months
    • Do you need to Geo-Fence? Excluding specific countries from participating e.g. sanctioned countries, Countries that have banned token sales like China or credited investors from the USA.
    • When will be the tokens released?
      • Right after a finish of the sale
      • Lockup period for advisors or owners
    • Who will be your investors?
      • Institutions
      • Family offices
      • Private investors
      • Micro investors

In general, you want to have a well thought out and crafted offer in which all of the information is presented to the person looking to participate in your ITO. It’s easy to lose the reputation of your startup when you are going to change the terms of whitepaper in the middle of the campaign, it is now even illegal to do so in some countries.

Whitepaper

    • The whitepaper is where everything above comes together and is synthesized in one key document. The whitepaper should cover all the aspects behind the business like:
      • Introduction to your business
      • What problem are you solving?
      • How are you solving things problem?
      • What’s the vision?
      • Larger Milestones for the company?
      • The team behind the company
    • Once your Whitepaper is officially released, it is illegal in some countries to change the terms of whitepaper during the crowdfunding campaign.
    • Token Offering part:
      • Symbol:
      • Total Supply of tokens:
      • Start date:
      • Finish date:
      • Soft cap:
      • Hard cap:
      • ICO Launch stages, prices,  allocation, and bonuses, dates (example)
        • Presale: 30 000 000 tokens/ $0.3 per token + 30% bonus/01 Jun – 21 Jun
        • Pre-ICO: 90 000 000 tokens/ $0.4 per token + 10% Bonus /21 Jun – 14 Jul
        • ICO: 150 000 000 tokens/ $0.6 per token (no bonus) / 15 Jul – 07 Aug
    • This one document should give a prospective contributor a full picture of your application and give them enough information to make an informed decision.
    • Technical whitepapers are hard and can easily take 200+ hours of work from the whole team in a very short period of time. This is also the one document where your team has to take ownership in creating this document, and the bulk of it cannot be outsourced — editors can help clean it up, but your team needs to write the bulk of the document.
    • Writing a whitepaper is the one thing that founders shouldn’t outsource, as the writers usually don’t have any clue what is happening in the inner circle of founders. That said, please get an editor before publishing your whitepaper.

Once you complete your whitepaper, I would highly encourage you to get detailed feedback from respected figures in the crypto space and field you are working in, as well as the core demographic you are targeting for your ITO .

Legal

    • You’ll need a reputable law firm who has experience with incorporating blockchain companies/foundations and running an ITO process — to advise you on your process.
    • The biggest legal question you’ll need to answer is: Is the token you are offering a security or not?
    • When is the token security token?
      • It is an investment of money
      • There is an expectation of profits from the investment
      • The investment of money is in a common enterprise
      • Any profit comes from the efforts of a promoter or third party
    • Do you want to launch it as an Utility token or Security Token?
    • If you want to launch it as utility token, what do you need to do to mitigate the concerns that the token may be a security?

Disclaimer: This guide doesn’t contain any legal advice so be sure to talk to a lawyer who has been through this process before.

Communication

In general, the communication strategy for your team will encompass of all of the channels you will use to communicate about your project (website, whitepaper, email, telegram, social, etc). You have to make sure that you hire a team, that can be available 24/7.

What do you need for setting up a token sale? (Technical part)

How to set up a crowdfunding landing page?

 

    • Keep your Landing page for the crowdfunding campaign separate from your main product page.
    • Make sure that you have a professional looking website for your ITO, otherwise, it’s more troublesome to get funding for it.
    • Whitepaper (See the whitepaper section above)
    • Team — Each team member needs a clear and updated LinkedIn profile because potential contributors will be doing due diligence on each member of the team.
    • Advisors — Each advisor needs a clear and updated LinkedIn profile because potential contributors will be doing due diligence on each member of the team.
      • A potential red flag to contributors is when there are more advisors than team members.
    • If possible add previous investors like VC funds, angel investors, etc
    • Problems that your industry is facing and how are you solving them
    • Milestones
    • Allocation of assets:
      • Token allocation
      • Funding allocation
    • Token sale information
    • Links to social accounts
    • Translations

Investor Dashboard/wallet:

This is the part where most crowdfunding campaigns win or lose their investors. After going through a huge marketing campaign where projects have set up everything perfectly with A/B testing, re-targeted ads, and full marketing package, it all comes down to the platform where an investor is going to make their investment. The platform is meant to convey confidence and to store investors’ data safely. Investors need to know that their funds and data are secured.

The investor dashboard usually contains from the following sections:

  • Crowdfunding Platform dashboard
    • Current live information about the token sale
    • Crowdfunding information like
      • Token Symbol:
      • Total Supply of tokens:
      • Start date:
      • Finish date:
      • Soft cap:
      • Hard cap:
      • ICO Launch stages, prices,  allocation, and bonuses, dates
  • Integrated Know Your Customer and Anti Money Laundering system (KYC/AML)
  • Payment gateway for receiving funds:
    • There are services that allow you to receive up to 50+ tokens
    • If you are compliant to do so, you can also collect funds in FIAT (USD, EUR)
  • Sales system for sales reps or other promoters.
    • Make sure that there is a minimum entrance to become a promoter, otherwise, your token sale might be scammed for extra tokens or rewards
  • Secure server and infrastructure hosting
  • Admin Dashboard: have an overview of what goes on in your system
  • Use live chat support for your dashboard, so your salespeople or community managers can help your people at the most important step.

Interested in funding your company click on the chat button in the right hand corner

Launch your Crowdfunding Campaign

 

Setting up Smart Contract on Blockchain

    • What blockchain will you be using?
      • Most of the ITOs/ICOs run on the ERC20 token
    • Create the smart contract well in advance.
    • Security audit on the smart contract — You need to do this well ahead of time and publish the results.
    • To be extra safe, some projects now have multiple parties do their own independent audits and publish all of the individual results.
    • Need to set up the wallet you will receive the ITO payments. The safest options are hardware wallets or even multi-sig hardware options.
    • Depending on what currency you accept, you might need more than one setup.

How to improve the security of token sale

Security is the most important part when it comes to the crowdfunding, if there’s money moving, there is someone lurking around and trying to also get their hands on it.
How hackers usually move? They will start pinging the ICO pages trying to find the way in. if that doesn’t work they will find another way like creating a duplicated sites, that looks like yours (called phishing sites).

We have made a list of the things that you can today, to improve your security of the token sale.

    • Buy all of the website domains that look like yours, and all of the various Top-level domain variations of your name.

Hackers will try to re-create your landing page with a domain name that is similar to yours, using their own address instead of yours. You need to be on the lookout for any potential scam leading up the ITO and even after the ITO.

    • Ask your backers to bookmark your page.
    • Add an reminder to your sign in and sign up page, to check the url above, that are you sure, you are logging into the right site.
    • Register social media accounts that look similar to your campaign

Similar to a website, hackers will also try to copy and spoof your social media accounts and point them to a different landing page than yours. You’d need to be on the lookout for this even after your crowdsale is over. One move scammers try to do is “extending your crowdsale” and tricking potential supporters.

    • Setup CloudFlare on your landing page
    • Use Cold storage wallet

If it’s offline, it’s hard to touch. For an extra layer of security use hardware wallets or paper wallets. Remember to lock them up in some place secure.

    • Educate your team about cybersecurity, because most breaches have been due to human error
    • Set up two-factor authenticator for your users
    • Make sure that everyone from your team is using two-factor authenticator everywhere, even with their personal emails.
    • Never use the same password twice.

You need only one security breach to turn everything upside down. Use different passwords for all the accounts, if one of them gets hacked, the rest are safe.

    • Keep your key structure secured

Keep the passwords for different servers or services on only need-to-know bases. By doing so it will lower the risk of sensitive information ending up in wrong hands.

    • Remind people NOT to send in their contributions from exchanges like Coinbase. Needs to be from a wallet they control (e.g. Metamask).

Should you build your own KYC/AML process or use a service for that?

Some business owners might be thinking: ”It’s just a form where I’ll collect some data and a couple of pictures, what’s so hard about that?” True. Although, if you find yourself in a situation where your ICO is used for money laundering or hacked for personal information with documents held on your servers, you might hope that you collected more funds.

On the other hand, investors are reluctant to give their highly personal information to new crowdfunding projects. There have been some scams where ICOs were conducted to only steal identities. These cases have made investors more cautious, now they are looking for ICOs that have a highly known and trusted third party KYC provider, so they know that the ICO isn’t storing their passport, ID card or driver’s license details on their servers.

What if you could start your ICO without technical headaches, with integrated professional KYC system that banks and other financial institutes use? It’s not hypothetical anymore, because there is a solution. ICOVenture has partnered up with the most reliable KYC/AML service provider to help ICOs collect funds while making sure that the collected funds are all legal. Although ICOs receive the confirmation and certainty that all KYC requirements are met as strictly as possible, sensitive personal data is processed by the Verification provider and isn’t forwarded to any other side. This enables to decrease the potential perception of distrust. The necessary verification services are offered by ICOVenture KYC/AML Service, which is likely to become a worldwide standard for building up trust in the internet.

KYC/AML service for ICO

 

Do you need Github?

    • It’s not mandatory to have everything on GitHub anymore, but it gives a lot of extra credit.
    • You must have your ITO smart contract available publicly. This gives your organization an extra transparency.
    • Need to have a clean, updated Github repository.

How does ITO Investor community management look like?

    • We recommend for internal communication channel Slack, as it’s easy to use and has a lot of features for customization
    • You need to set up an infrastructure for the main communication channel.  
      • One of the best ways to do so is by using the following channels:
        • Integrated chat by Drift
        • For email support with more delicate issues use Zendesk
    • You should consider hiring a full-time community manager to moderate the communication channels. This community manager can also act as the link between the larger community and your internal team.
    • You can consider using Telegram as one of the communication channels with the community.
      • You can choose to keep your groups open/public, where people can share their ideas (which is usually can I get free stuff? when moon, Lambo?) or more closed, like a channel which is meant for broadcasting
      • There are pros and cons for open and closed groups.
        • Bros are that when someone has set up a phishing site or trying to scam people, it will be alerted even faster to the public.
        • Cons: It needs heavy moderation, as there are all sorts of questions and suggestions coming out in the chat.
    • Be prepared to have extra people on staff ready to answer questions. On all channels, all of the time.
    • The more successful your ITO is, the more community support you will need.
    • Make sure you sustaining presence well before your ITO, during your ITO, and well after your ITO. Potential contributors need to know that your team is serious and in it for the long-term.

How can I reach the right people in the crypto industry?

BitcoinTalk

    • Create a Bitcointalk announcement of the token.
    • Example: https://bitcointalk.org/index.php?board=240.0

Newsletter

    • Setup a newsletter on your website.
    • Email is the best way to directly share important info with potential contributors on the day of the ITO.

Blog/medium

    • Set up an informative blog about your industry, company.
    • It’s not only good for SEO, but it also helps to give your company more credibility
    • Try to post as frequently as possible.

Twitter

    • Need to have a clean updated Twitter account.

Advertising

    • Which channels are you going to use to promote your crowdfunding campaign
    • Listing sites
    • Paid Media
    • Social Media marketing (There are restrictions)
    • Google Ads
  • Advertising to a crypto community is a bit different than to the regular people, you should look after an agency that has provided some results in the industry in collecting funding from investors.

Public relations

    • Press Releases, provide value to the public .
      • Crypto publications
      • Relevant news publications
    • Interviews - Webinars, Q&A, speaking engagements.
    • Events — Conferences, meetups, technical talks, dinners, online Q&A sessions, etc.
    • Podcasts

Translation

    • Should you translate your project into other languages?
      It depends on the people who you are trying to reach.
    • The most commonly translated languages are: English, Chinese (mandarine), Korean, Spanish.
    • Not only do you need to translate your whitepaper and website, but you’ll need to translate all of the changes and announcements going forward. You might even need to hire someone to manage the translations for Q&A and inquiries on various social channels.

Preparation for the ITO

    • If you are doing a registration system based ITO, release all of the details and have people register beforehand.
    • Create a tutorial for registration
      Release a tutorial video and tutorial blog post on how to participate.
    • Create explainer videos to show how to purchase tokens. You need at least a semi-professional 2–3 minute video with professional voice talent. Set this to private and don’t release it till the day of the ITO.
    • Write blog posts about every step of the process.
    • Livestream video Q&A
    • Community management if you have launched a public telegram or something similar, be ready to be overwhelmed, you will get an enormous amount of questions leading up to the ITO.

How the launch day of ITO/ICO usually looks like?

    • On the day of and the days leading up to your ITO, the whole team needs to be on the call 24/7.
    • Be ready to be attacked by hackers.
    • Remind people to NOT send in their contributions from an exchange, they need to send it in from a wallet in which they control the private keys.
    • Keep sharing the tutorial videos you have created for how to participate.
    • Tell people on the homepage, which channels are the official sources of company news

What Happens After the ITO campaign?

After the ITO is finished you will get following questions:

    • Where are my tokens?
    • What exchange are you going to be listed on?

Where are my tokens?

    • Create a tutorial video (for all combinations of wallets) and post it to all of your channels.

What exchange are you going to be listed on? When?

    • Most exchanges have an application page, if you wish to be listed on them, start building out these relationships before the ICO even starts.
    • If you have ERC token, your token will be probably listed on exchanges like EtherDelta as soon as you have given the tokens to backers.
      • EtherDelta is a peer-to-peer exchange, where anyone can offer any tokens or currencies for sale without your permission.
    • After the ITO campaign writes a press release how did the campaign go.
    • To keep your backers happy and the value of the token stable, send out a weekly newsletter to your backers about what have you accomplished.
    • Keep all the channels active, after the ITO as well, because people are interested in what’s happening with their money.

Most frequently questions about Tokenomics: how to manage the tokens.

Tokenomics is about buying, spending, freezing, discounting, and burning of tokens. If you retain a lot of tokens in the company vault, people will wonder when those will flood the market.
If you pay people in tokens with no vesting period, they can dump them immediately to receive a fast payday.Although If you pay in locked-up tokens, you have to be ready to supplement some of those with cash. To make sure that everything goes according to the plan, you have to overcommunicate with everyone. By doing so, you make sure that everyone is on the same page and they know exactly what’s coming.

    • How are you going to distribute the tokens
    • Do team and advisors have a lockup period?
    • Are you going to destroy the tokens that aren’t allocated?
    • Make sure that your investors know about taxation. you need to communicate how the tokens are taxed for the team, advisors, investors.Make sure you have a compensation plan for employees and advisors early on.
    • Rule of thumb: Be transparent and honest with all the parties

Be careful about managing your funds after the token sale

    • Once you raise your funding through an ITO, you’ll need to decide how to store the funds.
      • You can choose to convert your crypto into FIAT or keep some portion in crypto.
      • There are pros and cons for both keeping money in crypto and in fiat.
    • Start the conversations with banks early on. By doing so you will eliminate risks of running into issues when converting funds from the token sale to fiat or wiring funds for company expenses, taxes, etc.

Fundraising through an ITO vs. fundraising through equity isn’t any easier, it’s just different. As a team, you really want to make sure that a token sale is the best thing for your company because if you do an ITO for the wrong reasons, you’ll be stuck with the consequences for a very long time.

Disclaimer: This is not to be construed as investment or legal advice, but rather meant as a template to show the process behind an ITO, and what a project’s stakeholders (team, board, stakeholders) should think about when conducting an ITO.

Kenn Lend

View posts by Kenn Lend
Kenn’s passion is to build and scale new startups. He has been building and launching startups for over 10 years, during that brief time he has launched more than 50 projects. Kenn is bringing to the table a deep understanding of blockchain, fintech, and product development. He is an expert in taking something complex like blockchain and making it into a seamless experience for the end-user. Currently, he is also a CEO of ICOVenture that helps new startups to find funding by helping them to tokenize their assets. Say hello to Kenn on twitter: @kennlend

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