If you aren’t already familiar with ICOs or STOs, make sure to check out the following blog posts first.
My personal experience with those two elements were as follows:
Since 2011, I have followed startups receiving cash for equity with the traditional VC funding method. Sometimes there were some startups in the headlines raising huge amount of cash either in a normal equity deal, convertible note or cash and equity switch. Due diligence for such events can be time consuming, expensive or both. In this case, it also means there is valuable time taken away from the team and entrepreneur to satisfy existing shareholders, business angels or VCs.
That is just my personal experience after having gone through several due diligences myself. Maybe at a certain level of deals you can have consultants doing the work, but I think that would be quite expensive.
So what is the potential new kid on the block? a.k.a. another promising funding option for promising entrepreneurs and teams?
The ICO itself has the following advantages, of which the most common use case is the utility token which can also be called payment token. Feel free to check all other token types in the following graphic. If you want to find out more about security tokens, we established following page in collaboration with No Limit Club Members.
What are the pros for utility token ICOs?
Time to market – if your team is an existing company and knows how to work together in design, development and marketing, you can execute a top-notch utility token within 6 months, especially if you know blockchain, crypto and execution.
compared to a traditional funding search, you would take this time to pitch and hopefully have 1-5 potential investors who would like to sign a term sheet and start due diligence.
Of course, we have seen cases where a team was completely non-transparent with the community – it can happen; but, if you are a trustworthy businessperson, you’ll love the transparency you can achieve with having your “so-called” bank accounts (wallets) online on blockchains like ethereum and bitcoin, and use them for your monthly expenses.
compared to a traditional funding search, you might spend more time updating your shareholders and doing additional fundraising, as your runway gets less and less.
Evaluation in favour of entrepreneur
don’t get me wrong, valuations about startups are one of the biggest miracles out there when it comes to the startup space. ask 1000 auditors to provide you with a company valuation about your startup and you’ll get 1000 different responses. So, my personal opinion in this special case is that going the ICO/STO way is more favourable for the entrepreneur. Please note: there are also many overvalued crypto startups. You should always do your due diligence and come to your own conclusion about whether or not you feel a project deserves your contribution.
showcasing an ICO/STO project / product comparable to an IPO – public offerings?
why is it a good idea to run your company as it would be listed on the traditional stock market? Well, it facilitates easier interaction with your audience, community and equity shareholders. You should try to be a very communicative project, which in turn, is usually rewarded by the community or potential contributors. So running a crypto startup like a public company is simply the way to go in my opinion when you look at the development in this space of more and more technopreneurs; there are constantly increasing numbers of people getting involved with highly skilled team members.
compared to traditional funding search
you could create a pitch deck and pitch it to many VCs or family offices in hopes of getting funding (which can be a very exhausting process). On the other hand, why not structure the company in a way that supports the best best pitch deck you can create?
Try to be as transparent as you can in terms of hiring and development TenX had an interesting initiative to publish a so-called transparency report. I love this kind of style of interaction with your existing user base and maybe also future audience. Now of course, there was also a lot of discussion around how much cash you actually need to execute your vision. If it’s too much cash, maybe it’s counterproductive.
How to fight FUD?
TenX came up with a so-called transparency report
Is ICO or STO holy grail?
Personally, I don’t think that either an ICO or STO is the holy grail for fundraising, but I do think it’s a very good vehicle for entrepreneurs to still focus on execution of the company, which should always be the biggest goal.
Which jurisdiction would I choose?
Go with either Liechtenstein, Singapore or Malta.
Which token type is favourable for me?
Find out in a free brainstorming session with us.
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