9 Steps To Follow When You Are Raising Funds With Cryptocurrency
When a business reaches a certain point in its growth, it looks for ways to raise money to pay for the next growth stage. This happens when a company wants to grow quickly but needs more money than it has at the moment and hence they set out raising funds. Even crypto businesses can be affected by this, but they have more ways to deal with it. So, if a crypto startup wants to start raising funds, it needs to think about how to raise funds. But if the startup is too early or too late in its development, it might not be able to use any of the traditional ways to raise money, such as an IPO or a bank loan.
In the cryptocurrencies and blockchain space, there are new ways to raise money that hasn’t been available before.
So, what does it mean – “Raising funds in cryptocurrencies”? How is crypto fundraising different from other ways to raise money? How can businesses benefit from this new wave of financial technology?
Before we get to all that good stuff, let’s talk about the traditional ways to raise money: venture capital and angel investors. Then, we’ll compare the initial public offering (IPO) to the most popular way to raise money in cryptocurrency, the initial coin offering (ICO). We’ll also talk about the initial exchange offering (IEO), the initial DEX offering (IDO), and the security token offering (STO).
Raising funds the traditional way for venture capital and angel investors
If a business needs money, its owners might want to look into venture capital firms. A venture capital fund is a group of investors who pool their money and bet on new businesses. These companies find potential investors by sending out prospectuses. A prospectus is a formal document filed with the SEC that describes the benefits and risks of an investment. When investors show interest in a project, they give the company their money.
The people in charge of the fund look at many business plans to find the ones they think will bring in the most money. In exchange for money, they want equity, a fancy word for shares in your company, so they can get out quickly and make money.
As a business owner, you should know that a venture capital fund is for a short time. These companies want to sell their shares to make a quick profit and move on. What’s good? If venture capitalists choose to put money into a business, it means that, at least on paper, they think the business’s value will go up quickly. The bad news is that the business might have to give up a part of itself.
On the other hand, Angel investors are usually very wealthy people who invest in a business when it is just starting out. Their investments tend to be based more on the entrepreneurs and what they want to do than on how good the business is. Instead of wanting to get out quickly, they want to get funding so they can make money, mostly from the equity they may or may not hold.
In 2017, a lot of money was raised in the crypto space. It was called the “ICO craze” by many analysts and people who took part. With ICOs, a lot of projects went live. No one was surprised that most of them failed in terrible ways.
But a few of them made enough money to become millionaires. Many analysts saw similarities between the ICO craze and the dot-com boom when too much speculation led to a huge bubble and caused a lot of new online businesses to fail. In 2017, experts were ready for a crash like the one in 2008, but it never happened.
The ICO craze did, however, lead to the creation of a few other ways to raise money with cryptocurrency. There are STOs, IEOs, and, last but not least, IDOs in this group. Let’s talk about each one in more depth below.
The first sales of coins
An initial coin offering is an initial public offering (IPO) to the stock market (ICO). An ICO is a way for a company that wants to build a new app, coin, or service to get money to do so. First, let’s talk about what an ICO does, and then we’ll talk about the important differences.
The white paper, which is probably the most important marketing document, is the most important way for blockchain and cryptocurrency startups to raise money. It asks people to invest in the company. While brochures and other marketing materials may be straight-up sales pitches, a white paper is meant to convince and show technical and factual proof that a certain service is the best way to solve a business problem.
The white paper has important information like how much funding is needed, a roadmap with a quarterly schedule, the business’s tokenomics (how tokens will be distributed, including how many tokens will be available to the public and how many tokens the founders plan to keep), and details about the fundraising campaign.
How to start your own initial coin offering (ICO)
Here’s an overview of how to raise money for an ICO that will be successful:
- Check to see if the project really needs an ICO or if an ICO is the best way for the business to get money. Not every business should do an ICO. Even though it’s easier to start an ICO than a traditional IPO, it shouldn’t be seen as a way to get around the strict rules that go along with it. If a company is thinking about doing an ICO, the most important thing to think about is whether or not its token will be useful. If, on the other hand, it’s only meant to help with the sale and nothing else, then an ICO is not the way to go. But if the business token can be used in a real way, the business should move on to Step 2.
- Put together a group. If the token can actually be used for something, it’s time to call in the experts. From making the product to selling it, there are many things that need to be done. Advisors may or may not be on the team. No matter what, advisers should have experience getting ICOs off the ground successfully. There are a lot of crypto projects that start-up without any advisors, but it is unusual for larger projects to not have any advisors on their board.
- Check if there are any rules about how to run an ICO in the country in question. Some countries have strict rules about what makes security for investments. Some countries, like China, have outlawed ICOs completely. Users should make sure they are not in trouble with the law. This ensures there are no legal or technical problems on the road ahead.
- Prepare a project roadmap. The project roadmap shows investors how long the project will take. This lets them know how the project is going and what to expect as it goes on. Investors should have a lot of faith in the team as long as they can meet the set goals. This is good for getting money, but it also helps keep the cryptocurrency community active and excited.
- Write the white paper and get it out there. Check out the marketing materials that your competitors have put out. This includes looking at good and bad ICO white papers to determine what makes a good one.
The goal of the white paper is to give investors a sense of security. So, it should say what the project is about and what problems it solves. Users should also say why the team is the best one to solve their problems. Lastly, talk about details that would make an investor more likely to back the project. Getting a writer who specialises in white papers for the crypto industry might be a good idea.
- Set up a web presence. Any crypto project that wants to be taken seriously needs to have a website. The site is where the advertising is done. Any possible investor can go there to learn about the project and read the white paper. A lot can also be done by building and promoting the community. Users can reach out to crypto influencers to see if they would be interested in promoting the project. Lastly, it’s very important to get the project on ICO listings. Many serious investors look through these lists often to find projects they might want to back.
- Pick a token sale model. There are several models, from the Dutch Auctions to auctions with fixed rates, that are capped or not capped. Users can even consider a hybrid model. The ICO could also be split up into several stages. Even before the ICO is open to the public, there may be a presale or a private sale. Make sure that the model for selling tokens is friendly to both investors and people in the community. A project can fail in its early stages if the community reacts badly to what they see as unfairness.
- Put a smart contract out there and start making tokens. Early on, the details of the project should say which blockchain it will be built on. Because it was the first blockchain to use smart contracts, most projects live on the Ethereum blockchain. But now, there are a lot of competitors with faster throughput and different technical designs.
Users should hire a developer who can look over their smart contracts. The developer can make sure that it can’t be used to do anything bad. So, when the launch date comes, there won’t be any problems that didn’t come up before.
- Launch ICO. This is the last step in the process of raising money. When the ICO starts, a lot will depend on whether or not the project raises the money it needs. If it does, keep building the community and improving the project. Go over future plans. The rest will work itself out.
For the actual ICO campaign, anyone who wants to invest can buy tokens with real money or a digital currency that has already been chosen. The token can be thought of as a piece of the company. In an IPO campaign, on the other hand, it is up to the private company to decide when to go public. To be eligible for an IPO, a company must meet many strict requirements, such as letting the public look at its books, risking losing control, paying more to report, and so on. An underwriter is in charge of the IPO. The underwriter tries to set the price through a process called “book building.” The underwriter puts together the book by asking investors how many shares of the company they might want and how much they might be willing to pay for each share.
A public stock offering also needs a third-party audit to ensure that all of the company’s financial activities are legal. This protects investors, which makes them more likely to trust the project’s reputation.