MISTAKES TO AVOID WHEN RUNNING AN ICO (PART I)
The rise of the online crowdfunding platforms has generated the new breed of startup superstars bootstrapped with the help of the Kickstarter and Indiegogo communities. People enjoy being part of the rise of promising young projects (especially those that aim to disrupt the market the way Ethereum does today). This democratic fuel of p2p economy powers the ICO funding. Being connected to the community 24/7 through the telegram chats and directly responding to them for the success of the project. The ICO startups are undoubtedly going to be a one of kind ride for their founders for the next five years of the first Wave. Your reading the Crypto Lawyers Corporation’s Log of ICO mistakes.
At Crypto Lawyers Corporation we analyze startup companies on a daily basis providing the legal opinion on their product and documentation as well as the due diligence on the whole project and its team.
In this series of articles, we will be cataloging the popular mistakes ICO founders are making.
Note: None of the articles should be regarded as a legal or financial advice and are provided for informational purposes only. You may apply for our free consultation now, should you have any questions to discuss regarding your ICO. Make sure to prepare all of your questions beforehand as we won’t have much time due to the limited availability.
With that being said let’s start with the first 5 dangerous mistakes that every ICO should be aware of and try to tackle as their first priorities. Failure to solve these mistakes puts the entire campaign at risk.
Failure to secure the soft cap during the Road Show
In order to increase the trust among the potential investors, it became necessary for the fundraising startups to name their soft and hard caps and provide a detailed reasoning behind them. Having multiple fundraising milestones helps the companies creates the trust of the audience that respectfully expects a growing progress bar of the fundraiser and serves as the hype booster for provoking the media coverage.
This model is very similar to the Kickstarter approach where promoters are making sure they have the support of the first circle of contributors that will ensure the smooth boost of the project and make it gain 327% above the announced goal (i.e. angel investors, friends, and family). This number respectfully looks more interesting to the bloggers and journalists as opposed to 89%, for instance.
If the startup wants to reach their soft cap and attract the attention of a larger crowd, they have to perform the Road Show and collect the hard commits from their early investors. Otherwise, they risk not gaining enough velocity to reach the Hard Cap.
Also: Feel free to reach out to us if you have any questions regarding the Legal Opinion for the Early Investors or the Investor Relations (IR) assistance.
Failure to present the solid team
P2P nature of the ICO fundraising process requires the founders to be as transparent with their audience as possible. An increased amount of the ICO scams makes the potential investors strongly research the team and its common track record.
Failure to provide the detailed information about your team lowers the level of trust from your team. Founders have to make sure that their information is provided consistently across all platforms. Investors are more skeptical of the teams with incomplete or inactive LinkedIn accounts.
The HR professional should be considered among the first team members to onboard the project. If the team is the core of the startup. The HR is responsible for its strength.
Failure to consult with the legal professionals
This mistake often leads to the creation of the illegal securities offerings and SEC calls. Make no mistake, the SEC enforcement process is an enduring and time demanding activity.
Every founder should consult with the legal advisors while building the Token Architecture in order to make sure their model stands firmly in the legal grounds.
Note: Simply calling your token a utility doesn’t change its substance and experience legal advisors should help you to look at your Offering the same way the SEC enforcement team would. And the responsibility they bear for their Legal Opinion prevents the biased opinion.
Starting your ICO? Consult first!
We live in the world of changes where the advanced security protocols are aiming to change the very structure of the Internet we’ve come to know up until today. The innovations in the blockchain and the services and infrastructures that are being built on top of it are changing the landscape of the Web.
If you’re looking to launch your ICO consulting with the legal professional is a must! At Crypto Lawyers Corporation we provide a free consultation for the founders. Feel free to reach out now with questions or concerns. Learn more about why every ICO needs an escrow here.
Learn more: How to choose the right country for your ICO?
About Crypto Lawyers Corporation
This blog was created in order to educate the Crypto Lawyers Corporation clients and partners about the developing world of ICO campaigns, be an introduction to the world of Blockchain, the latest industry updates and share our professional experience. However, none of the materials in this blog should be regarded as legal or investment advice.