As per Coinschedule, ICOs have seen an astronomical year on year growth in 2018. In amongst them are some truly groundbreaking projects who have launched their funding rounds with impeccable professionalism. However, there are also an increasingly familiar set of easily avoided mistakes that many ICOs are making. In this article we identify the top 5 mistakes ICOs are making and provide some easy steps they can take to avoid them and improve their chances of success.
1. High valuations are not conducive to long term success. Buyer beware.
YouTube built their initial product with less than $1m of angel funding and their first VC funding round was only $3.5m. With this they built one of the most widely used and successful products of all time. Meanwhile the average ICO is now raising over $10m.
It should be no surprise therefore, that the average ICO in 2018 is now delivering a negative return on investment, with the average token launched in 2018 being worth less now than during the ICO. There is no doubt that recent adverse market conditions have had a role to play in this, but it is certainly also a function of the unrealistic valuations being placed on new blockchain projects.
These deflated returns don’t just damage investor confidence, but they also damage the project. Projects that see their token price plummet after ICO quickly lose momentum and face an atmosphere of negativity and disillusionment from their stakeholders.
The antidote to this problem is simple. Organizations running ICOs should be asking for the amount of money they need. This should not be guesswork either. Like any investment, the management team should lay out a clear, carefully itemised business case explaining exactly how the money is spent and why that particular figure was chosen. Raising the minimum amount needed to build and market their product would in general yield much lower hardcaps than $10m, which would allow much more headroom for growth and take pressure off the initial growing phases of the project.
2. Rely exclusively on traditional marketing channels at your peril
Often one of the biggest costs that ICOs usually incur if they are to be successful is marketing. However, millions of dollars is being poured into strategies that aren’t working. Organizations running ICOs are often dedicating the vast majority of their budget to banner ads, YouTube ads, Google AdWords and advertising on mainstream platforms like Facebook.
Of course, all of the above should be part of any successful ICO marketing campaign, but alone they are very unlikely to be enough to fill a multimillion dollar hardcap.
To be successful in the unique world of cryptocurrency investment, organizations running ICOs need to spend as much money and attention on the specific channels used by crypto-enthusiasts such as Reddit, BitcoinTalk and Telegram. Not only do these channels tend to be the key areas where new ICOs gain publicity, the metrics associated with them are often used by investors when evaluating whether a project is gaining traction. Numbers of Telegram subscribers and regularity of Reddit activity, for example, are often seen as key metrics of how much hype an ICO has achieved.
Organizations running ICOs should adopt tailored strategies to these channels. Airdrops and lotteries incentivising Telegram sign-ups and Reddit posts have both proven to be successful techniques, whilst having an active moderation and engagement plan helps convert these followers into an engaged community.
3. Tenuous advisors and influencers who lack credibility can make great projects look like scams
It has become a truism that ICOs need to have an “all-star advisory board” in order to be successful. However, there is a series of mistakes that is being made over and over again when assembling advisors for blockchain projects. Firstly, many projects are taking on advisors with no real meaningful connection to their project. These are often perceived big-names in either the crypto sector or the investment world, but with no link to the actual market sector the ICO is targeting.
When selecting advisors, organizations running ICO should consider 2 questions:
- Does this advisor have market-specific knowledge that can be applied to give meaningful advice to the specific niche in which our project is operating?
- Does the advisor have a network that could provide introductions that would lead to potential users, customers or partners?
If the answer is not “yes” to at least one of these, then they should not be on the Advisory Board.
Equally, organizations running ICOs should tread very carefully before entering into the devil’s bargain that working with celebrity influencers represents. Whether they are cryptocurrency-specific influencers or broader celebrities, whilst such influencers may bring heightened awareness to a project, they also increasingly damage their credibility. Remember that by tying your projects name to an influencer you are tying yourself to their reputation, which is something very fickle in the current cryptocurrency market. Growing a community organically through creating high-quality content that is relevant to your market niche and fostering interaction through your own social media channels will set projects up much better for long term success
4. Like it or not, have a solid strategy for exchanges or be forgotten
It is seen as something almost beneath them by many organizations running ICOs to reserve a budget for getting listed on major exchanges. Its true that decentralised exchanges such as IDEX are delivering increasingly large volumes and the fees for getting listed on major exchanges are extremely high.
However, the stakes are equally high. Tokens simply cannot achieve sufficient levels of demand to achieve steady price growth without being listed on a major exchange. Being listed on one of the big exchanges also brings increasing awareness to a project and an air of credibility. Ultimately, volume on exchanges leads not just to price increases, but also to wider adoption of the token, which should be the holy grail of every blockchain project at this juncture in history. Simply hoping that exchanges will list your ICO amongst the sea of projects being released each month, without a clear strategy is naive.
It may be seen as controversial, but the most successful ICOs now are pencilling fees to get listed on the likes of Binance into their budget and it is one of the investments that sees some of the most immediate and high impact returns for the project.
5. Projects that do not invest in water-tight regulatory compliance are exposing themselves to major long-term risk
With July’s G20 deadline for introducing cryptocurrency regulations fast approaching, regulation will continue to be the number one hot topic for the blockchain sector in 2018. Regulations should ultimately breed certainty and investor confidence that will allow institutional money to flood in and provide major long-term benefits to the sector.
However, in the short term it will increase the risk of ICOs falling foul of regulations. The SEC has already issued a number of subpoenas to ICOs this year and this trend is only likely to increase as regulations are increasingly formalized.
Along with investing in the right product strategy and team, the right marketing channels and exchange listings, it is highly advisable for every organization running an ICO to reserve a sizeable legal budget for ensuring that their project is meeting all current and anticipated regulatory compliance or risk see all their hard work go up in smoke as the regulatory net closes in.
To conclude, there are many factors that go into an ICO’s success, which extend far beyond the quality of the product and the team. These seeming superficial factors can be the difference between a great project succeeding or failing at ICO. The common mistakes that are being made are easy to solve. Set a needs-based valuation with a clearly itemised business plan, have a detailed strategy for social media marketing channels such as Reddit and Telegram, only take on advisors with clear links to your market segment and reserve budget both for exchange listing fees and regulatory compliance. All this will ensure that your ICO is given the chance it needs to succeed and maximize the likelihood of not just your funding round being a success but of the long-term success of the project itself.