Even in crypto, there is still no free lunch

Let’s have a look at what the real costs of conducting an ICO are. How do teams ensure they really benefit from this new fundraising mechanism?


As many teams finish their tokens sale process, in front of them is a mirage — a promise of inexpensive, no-strings-attached capital, a quick and painless process, and a carefree (and VC-free) post-ICO life. What teams quickly find out after their token sale ends is that this “free money” has a real cost.

The cost of token-holder relations and maintaining an active community, the cost of needing now to execute on their projects in the public eye, and the cost of needing to “mature” as a business quickly to responsibly handle the large amount of funds raised. All of this is further compounded by a dearth of blockchain-skilled talent, as well as the difficulty of incentivizing other projects, developers, and teams to build on top of your technology. There is also the imminent regulatory cost, which should definitely be taken into account, though we don’t know its magnitude just yet.

Let’s have a look at what the real costs of conducting an ICO are. How do teams ensure they really benefit from this new fundraising mechanism?

Community is Job #1

During the token sale, you had thousands of people chirping away in your Telegram channel, asking tough questions and broadcasting excitement. This community can be a tremendous asset going forward: it could create a consistent testing environment for all new developments and members of the community could take up viral structural positions within the network as it grows and develops. It’s also worth noting that the very best communities are ones where founders are deeply engaged via Telegram, Medium, Twitter, and other channels. Great examples are Ripio, Civic, and Tierion. However, community engagement does not come out of thin air: you need to invest in it.

So, what is the real cost? Founder Time! To succeed, projects will need a dedicated community management team operating on various platforms. Keep in mind that community management is a marathon, not a sprint, so teams need to be mindful of who they dedicate to handle this aspect of the business. The size of this team will depend on the location of the core audience and their preferred venue (Telegram, Kakaotalk, WeChat, etc.) At the very least, a stellar community management team should have 2–3 people, covering all time zones.

Deliver What You Promised

With very few exceptions, ICOs are generally based on fantasies rooted in potential technologies that have not been fully developed yet. Once the afterglow of having raised so much money fades, teams are left with a daunting task: to turn the fantasies outlined in their whitepaper into a tangible, working product. Keep in mind that a token sale is a very public fundraising exercise, so all new developments (or lack thereof) will be placed under tremendous scrutiny. This means that your team’s technical background needs to be top-notch and your product development team needs to be large enough and committed enough to see the project to fruition. This also means that proactive public communication key, since even setbacks sit better with the community than radio silence.

So, what is the real cost? A token sale is truly a marathon at a sprint pace. Once you have closed the sale and distributed the tokens, the hard work will continue. You will need to deliver against the early milestones you articulated while overcommunicating with your audience. To hit these milestones, you will need to scale quickly, make tough hiring choices and potentially roll out raw results with little to no time for thorough testing. Brace yourself and prepare for the feedback, all of it.

Spin Up Real Company Infrastructure

So now you have all this money; it’s comparable to a startup Round C in some cases… What’s next? Well, you also likely have a complex legal structure grown out of the token sale’s needs, a massively elaborate tax scheme, and a need to keep track of a host of governance threads. The first item of business after closing an ICO should be to hire corporate, business, and engineering infrastructure. When it comes to a blockchain project funded through an ICO, it’s not just about the development team, it’s about scaling a real business. Large funding implies stewardship, governance, even fiduciary duty. They are essential for the long-term health of the project.

So, what is the real cost? Hiring a whole host of people: a COO, a real CFO, a GC, expensive (and rare) blockchain engineers with big career aspirations and rightful demands. Opening offices to accommodate these people, in geographies where it makes sense both legally and strategically. Investing in long-term infrastructure. In general, once the ICO is finished, you need to make an immediate switch from your short-term goal (getting the funding) to your long-term goal: delivering on the big vision you articulated.

Build the Network

The project vision most often encompasses others playing along. Whether you’re building a protocol on top of which others will build, or a dapp with which others will interface, there’s no way around trying to build strong networks and partnerships. The blockchain space is one buzzing with ideas. More often than not, projects can greatly benefit from cross-pollination, especially considering the fact that most of them operate on an open-source basis and therefore competition is a non-issue. Protocols can often benefit from integrations, making the respective products greater than the sum of their parts. Nevertheless, most blockchain projects out there today exist in silos, and this is not a conscious decision on their part. More often than not, this is due to a lack of key contacts within the industry, the people who have broader visibility and who can make the right introductions.

So, what is the real cost: You will need to spend time educating the community and attracting and investing in developers. Attending conferences to present and cross-pollinate your ideas will become a regular fixture. You will also need to start thinking strategically about what others are doing. Perhaps you could create strategic fund vehicles (see EOS, Tezos, NEM) to seed and incubate projects that develop for your ecosystem? Or spend some of those incentivization tokens you reserved on collaborations with other teams and product? Perhaps you could even do some token M&A?

Stay compliant

We are in a developing area of law, but one that’s very complicated. Compliance often rests on fact-based determinations as opposed to clear guidelines or safe harbors. Staying compliant after the sale, especially in relation to secondary market activity and sharing of information, is key. After the deal, continuing to rely on your issuance counsel will be essential.

So, what is the real cost? No one knows. An issuer may be asked to register and start filing regularly. Or not. This is THE big variable that will tell us, retroactively, the real cost of this capital. We just need to wait and see, but it’s important to have your ducks in a row when, inevitably, the regulators catch up with the market.

2018 will be a year of execution. There continues to be “No Free Lunch” — it’s just that the bill arrives much later and in a different form. Post-ICO execution is the key to success and the token sale is just the beginning.

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