The ICO ecosystem has changed radically in 2018 in comparison to past years. This area, which was once seen as the new wild-west for investors, has seen itself become a bit tamer as regulators across the globe started to enforce regulations diligently and shut down ICO’s that were fraudulent. The end result is a crypto-marketplace that is safer from scams then it used to be while still retaining its explosive growth.
Regarding investor confidence in the market, however, this twofold growth in both popularity and regulatory supervision has had a couple of effects. On the one hand, a greater quantity of both retail and institutional investors have flocked into the ICO market, hoping to cash in on the ever-increasing applications of blockchain technology. However, quite of few investors remain cautious and reserved about ICO investing. As regulatory bodies continue to enforce regulations and shut down potential scams in the marketplace, these instances that make the news only heighten a sense of caution that exists among more conservative lenders.
What this means for budding ICO’s is that to have the greatest chance of successfully meeting your funding goals, you need to take into account the concerns of these more timid investors while planning your marketing/branding.
Fear of Fraud
The first thing that investors worry about is that what they’re investing in will turn out to be a scam and that the team behind this so-called project will run away with their funds. You don’t need to look far to find numerous examples of this happening across the world.
PlexCoin was stopped by the Securities and Exchange Commission (SEC) in December 2017 in response to complaints by investors that the founder, Dominic Lacroix, was scamming them. Among other things, Mr. Lacroix was promising (here’s the first red flag) that their ICO could generate returns of over 1300%. Of course, this is extremely unlikely, and anytime a company promises returns that sound too good to be true smart investors get worried.
Regardless, this was considered one of the largest attempted ICO exit scams in history, and stories like these can’t help but make less speculative lenders concerned that ICO’s are overrun with fraudulent operations. Unfortunately, there definitely was some truth to this before, with some estimates saying as high as 10% of all ICO funding was either stolen or fraudulent.
Some ICO’s, such as the aptly named PonziCoin, are even overt about their goals, labeling themselves the “worlds first legitimate Ponzi scheme.” Surprisingly enough, this little project managed to secure $250,000 in gullible funding before being shut down by authorities.
Companies that are looking to abate this concern need to do as much as possible be give off a professional, legitimate image.
Investors will likely wish to investigate as much as they can about your management team, advisory board, and other staff. Above all else, they want to see that your team are real people, with extensive histories professionally that extend beyond their current crypto-project.
Make sure that your social media and other potential references are fully fleshed out and represented as professionally as possible. Do a simple internet search on the names of yourself and your team and see what pops up. That’s what your potential investors will be seeing as well.
Chief among these is the ICO’s whitepaper, but other content such as your website’s copywriting and other materials should be included in this area as well. When investors look through your whitepaper, they will be scrutinizing every aspect of it. Any plagiarized content or even grammatical eras would be a major red flag, so making sure there are no glaring mistakes is critical for making a good impression.
Besides that, potential buyers will be digging into the general premise of your token, along with the ambition of the project, the potential market for its solution, and whether they feel that your coin adds genuine, unique value in the crypto-marketplace. Much of this is done in the pre-ICO planning stages where the concept is first drafted.
Most of all, make sure that you’re being optimistic but realistic in your depiction of your ICO’s potential. Avoid making grandiose, overly optimistic, or simply exaggerated claims and beliefs about your project. If you give off the impression that the potential upsides are too good to be true, then investors will become skeptical that you’re not being completely honest with them.
Perhaps the biggest comfort factor for investors is if they see any social proof that your project is legitimate. Social proof, or social influence, is a phenomenon where people assume that if other people like, approve, or validate something, then there must be something to it. This idea works for ICO’s as well, especially considering that trust is such an important issue for investors in this field. If you can secure endorsements or reviews from influencers and experts in this area, you’ll be seen as more trustworthy.
Securing partnerships with other non-crypto companies prior to your ICO launch does even more to build trust. Large organizations are seen as much more trustworthy, considering that they often employ their own legal teams before entering into any partnerships with other companies. It also shows to others that your team serious about making an impact in your particular industry.
Being upfront, frank, and honest with your community does a lot to make them trust you. Routinely disclosing financial expenditures, existing code on GitHub, or even being upfront about setbacks and bad news are all things that crypto-projects can do to make themselves transparent.
Fear of Financial Failure
If investors aren’t worried about being frauded out of their money, then the next biggest concern would be the potential for losing their investment. Initial coin offerings are usually considered as a more speculative investment, often compared to venture capital endeavors (which they are). But with the failure or nonresponse rate of ICO’s close to 60%, investors are always worried about the possibility that an ICO either fails to reach it’s funding goals or somewhere the project collapses for one reason or another.
Demonstrating to investors that there is a legitimate need in the market for your token is the most straightforward way of addressing this concern. Showing that you’ve put thought into your project or provide any statistics or research that’s been done on your topic are among the best things you can do to demonstrate the market is craving a solution like yours.
As previously mentioned, partnerships also serve to prove this point as well. If a company goes out of their way to partner with your ICO, that’s a pretty good indicator that other organizations feel there is a legitimate need for your token.
One way for companies to fail is due to legal issues. It’s well known that the various regulatory bodies across the world are implementing legislation aimed at ICO’s. Some groups, such as the SEC, have been issuing cease and desist orders to some crypto-projects that have misclassified their tokens (whether out of error or a deliberate attempt to skirt regulations).
Demonstrate that your project has done their due diligence, acknowledging potential legal hurdles in whatever jurisdiction you’re operating from. Creating contingency plans, such as a legal policy to refund any token investments in the event of a legal shutdown does much in assuaging investor concerns.
Even if you do all of the above, you still need to realize that there will always be skeptics and doubters in the investment crowd, and that’s understandable. The best that you can do to ease the doubts of less confident investors is to demonstrate a level of professionalism, seriousness, and dedication that outclasses the rest of your competition.
Also published on Medium.