ICO – Common Misconceptions About Doing an Initial Coin Offering

ICO News, Investing, Regulation | October 11, 2018 By:

Many new startup companies consider the ICO as the easiest way to make a successful crowdfunding. Browsing the web makes it easy to understand that an ICO may be successful.  However, this is not true because competition in the industry is extremely fierce. Many have managed to fund their projects with an ICO, but by far the majority have failed. There are many reasons for failure, and I want to review in this article the most common mistakes and misunderstandings of an ICO.

ICO or some other financing form?

By far, the majority of investors are not familiar with cryptocurrencies, and therefore are not familiar with an ICO. This causes the ICO to drop potential investors instantly when doing so. Indeed, the competitive situation today is that if you do not need an ICO and cryptocurrencies for your startup crowdfunding, you should generally end up with another crowdfinancing form other than an ICO.

However, an ICO is still an excellent form of financing because the startup does not have to abandon the company’s holdings or take a loan that needs to be repaid. Blockchain technology has also enabled a wide variety of new services, and tokens they use are essential. In these cases, an ICO is probably the best form of crowdfunding.

Common misconceptions about doing an ICO

Many new startups are well aware of blockchain technology, but no one has experience with an ICO. Here are a few examples of the most common mistakes ICOs have made to aid in its failure.

Too big a campaign and too many tokens to divide investors:

Particularly in the early days of ICOs, very many startups made massive ICOs in which funds were collected multiple times over their need. Such an ICO is not even credible, but the biggest problems come from the fact that investors will not get enough profits or even lose their moneys as the real need of the token compared to total amount is too low. Investors are not stupid, the correct amount of tokens is such that it is far too small compared to the assumed turnover for the first few years. The assumed turnover must also be based on fact such as finished orders, actual product needs, etc.

The Token Function is incorrect, or the product is also sold in currencies other than tokens:

I’ve seen a lot of ICOs with a business idea, and the project itself is brilliant but function of their token is minimal. This leads to the fact that the real needs of the token will not grow sufficiently even if the project otherwise succeeds, and thus investors will not get profits.

Startups sell their token directly to its end customers and causes unintentional ”tokenloop.”

Startup loses its resources and even seed funding for vague advertising:

How does an ICO get the right visibility in which the ROI is even positive? An ICO’s marketing has brought aincredible number of different providers of visibility to the market, most of which, by far, are unable to provide the real visibility as they have promised and to the right customer bases.

Marketing is perhaps the most complex part of an ICO’s success, but is also one of the most important.

I noticed that the general visibility such as banners etc. will no longer be good because of the abundant supply of ICOs has made it hard to reach investors and, therefore, investors do not, for example, through banners, very easily go to the ICO website and focus on the project carefully. It is not possible to give clear instructions on how to handle marketing, because it affects the end product’s customer base, the product itself, and many other things. In fact, I have noticed, however, that investors in a physical meeting are definitely the best way to introduce a project. In that case, investors can ask questions and you can get their full attention.

There are also other potential problems that ICOs may encounter such as inadequate KYC, AML, and PEP verification that may cause problems in converting funds into FIAT. But the most important thing is trying to do everything right in accordance with the law. Advisors can also often help because they already have experience in organizing ICOs.