ICO Fundraising: The Role of Public vs. Private
An ICO is currently the most dominant method of fundraising in the crypto world. It's a tried and tested formula that works. But, with such a wealth of ICOs launching daily, there's a lot of noise in the space. It can be difficult to gain the attention needed to drive a successful public ICO.
An ICO is currently the most dominant method of fundraising in the crypto world. It’s a tried and tested formula that works.
But, with such a wealth of ICOs launching daily, there’s a lot of noise in the space. It can be difficult to gain the attention needed to drive a successful public ICO. This influx of new and emerging projects has led to a need for supersized marketing budgets.
The rise of ICOs and the need to stand out from the crowd in a packed marketplace has led the crypto projects to develop a phased approach to their ICOs.
It’s common practice for an ICO to feature a private presale before the general launch, allowing investors from the project’s personal network the opportunity to become token holders prior to the public ICO. This private presale allows both parties to benefit — the investor will usually gain bonuses and discounts in return for early investment, while the startup receives the capital it needs to invest in marketing budgets, allowing for them to generate the buzz and attention needed for their upcoming public ICO.
The presale period is usually followed by a bounty program designed to reward members of the project’s community with incentivized bounties — effectively rewarding community members with tokens for partaking in promotional activities across the crypto project’s various channels.
However, ICOs are not purely about fundraising — they can also be used to generate a community and attract collaborators, both of which can be useful in catching the attention needed for the project to gain success. Bounties can help build and establish this network.
TLDR partner Andrew Durgee believes that there is no set formula or timetable for an ICO:
“There really isn’t a standard format for ICO funding phases, in fact, there really shouldn’t be. The creative nature of the space encourages creative raising solutions. Often the technology solution itself will help shape the phases selected in conjunction with the overall tokenomics.”
With that in mind, we’re going to cover some of the more common steps for an ICO, but the recipe to success isn’t about following a step-by-step guide. It’s about understanding your project, and picking out the phases that you think will help it succeed.
The Private Presale
Private presales are investment opportunities that are offered prior to the public ICO. Presales are usually directed towards investors from your personal network, VCs and angel investors who are offered bonuses and benefits in return for being early investors. A presale is an ideal time for advisors, partners, and networks to be utilized in a symbiotic way.
They bring investment to help drive the marketing for the public ICO, as well as allowing a connection to their wider network of further potential investors and collaborators. Because of the shared benefits, Andrew believes that deep discounts aren’t always necessary in presale events:
“Private sales do not require deep discounts in order to gain traction. There are other ways to deliver a product to market without having to give away large amounts of tokens for free. Strategic and methodical community building is a great example of a better long-term solution.”
It’s far better to build an engaged community, who have invested time and capital than a network of people just aiming for free tokens. That said, crypto projects are increasingly shying away from public sales and focusing more on the private sale as a means of fundraising. Although some may say this flies in the face of the democratization of investment that crypto stands for, there are understandable reasons for the shift. There is always a risk of an ICO failing its public sale, especially if the community built up around the project isn’t as engaged as the bounty campaigns might suggest. This very public failure could prove too difficult to bounce back from, so keeping things private can be advantageous in this respect. Another reason for focusing on private sales is the level of investment. Private investors tend to make significantly larger contributions than the average participant in an ICO. With the potential gains being greater during the private sale phase, driving an ICO towards it soft cap (and even hard cap), it’s easy to see the attraction for crypto projects.
The Bounty Campaign
Following on from a presale, bounty programs are often used to gain wider public attention prior to the public sale. A well-planned and executed bounty program is an integral part of the digital marketing for an ICO. Bounties are essentially incentivized reward mechanisms offered by companies to individuals, providing compensation in the form of token bundles offered in return for tasks spread across marketing, bug reporting and improving the framework of the project.
While presales generate the capital, the strength of bounty campaigns lies in the community you can build. TLDR founder Tom Graham believes that the days of capital being enough to drive a new project are over:
“I don’t feel that innovation finance is ever going to go back to that VC model that we had 3 or 4 years ago; the one where essentially what the VCs had to deploy was capital. Maybe they had some networks, but they were never forward in bringing that to the table. It was mostly capital. I think VCs will have to adapt if they want to get involved in interesting projects because just capital is no longer enough.”
By creating a community of token holders, you’re building a network of people who actively benefit from the success of your project. This network can be vital in spreading the word about the ICO and ensuring a busy and successful public sale.
The Public ICO
The open ICO is the final stage of fundraising. If the first stages were managed well, there should be hype and media coverage around your project. ICOs work well when it’s open-source and decentralized, relying instead on a peer network to invest funds and their trust into your project.
A successful ICO relies on investors purchasing tokens, which in turn rise in value as the network purchases them. In a similar vein to crowdfunding, an ICO only becomes more successful as it grows in size and value.
ICOs are so successful within the crypto world because they remove the red tape around funding — it’s a transparent and secure way to invest. Both parties gain clear benefits and gain long-term rewards such as community and collaboration, rather than simply investment.
It’s the simplicity and frictionless nature of the investment process in an ICO that makes it such a favorable model for both serial investors, interested in making large contributions to the Private Presale, and individuals looking to make smaller investments into projects that have captivated their interest. For projects, ICOs remain the preferred route to market. But as adoption of crypto increases globally, the trend looks set to favor Private over Public ICOs, as a means of guaranteeing large-scale investment in order to get projects off the ground.
The TLDR Recap
- ICOs are currently the dominant method of fundraising in the crypto world.
- The cramped ICO market has led to a need for supersized marketing budgets.
- A phased ICO can generate capital for marketing.
- There is no set formula or timetable for an ICO.
- Private presales are investment opportunities that are offered to your personal network prior to the public ICO.
- Bounty programs reward members of the project’s community in return for promotional tasks.
- Capital is no longer enough to drive a new project. You need an engaged community.
- ICOs work well when it’s open-source and decentralized — making it a transparent and secure way to invest.
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This article is based on views and information held by TLDR on publication date and may be subject to change, although TLDR does not undertake to update them. Nothing contained herein constitutes investment, legal, tax or other advice, nor a recommendation or solicitation of an offer to buy or sell any securities or to adopt any investment strategy. No representation or warranty, express or implied, is made or given by or on behalf of TLDR as to the accuracy and completeness or fairness of the information contained in this article.