Launching an Initial Coin Offering (ICO) is a demanding procedural process. As the old saying goes, “it takes a village”. In this article we discuss the primary steps associated with launching an ICO and the individuals who can assist with the process.
How Does the ICO Process Work?
An ICO is a method of raising money for technology companies. Basically, the company creates its own cryptocurrency (or virtual currency) in the form of virtual tokens. The currency exists on a platform either created by the company or on platform specializing in trading third-party tokens. The benefit of the ICO is that early-stage technology companies are able to access the capital for development and growth long before traditional methods of funding are typically available.
ICOs are generally only available for technology companies. There are numerous reasons for this. Most notably, it generally takes a technology driven company to undertake the steps of creating and selling the digital currency. The companies must build or intend to build a technology platform or service to issue tokens. The tokens represent value on the future platform. There is a finite number of coins (I.e., the company will not issue more coins in the future, so the value of the coins rises as the value of the company issuing (and backing) the coins rises.
Investors of ICOs are generally technology investors. They want to purchase these coins at an early stage of development in hopes of cashing in when the coins rise in value. Investing in the tokens very early in the company’s development (generally before the company has even fully created its value offering) has the potential for major gains.
What Is Required for an ICO?
Launching an ICO requires numerous steps. The major components are as follows:
- Technology Platform – The company must be able to develop the company’s core value proposition. This normally requires a software developer, programmers, and (in some instances) computer scientists.
- Whitepaper – The company must disclose information to prospective investors. An ICO is generally considered issuing securities. A disclosure document, known as “whitepaper, informs potential investors of the nature of the company, the token being sold, and the terms of the sale. This must be drafted to meet the requirements of applicable securities laws.
- Token Smart Contract – The company must develop the actual token that will be sold. This requires creating a form of computer file that can be created, transferred, and stored. Further, the token must be compliant with the system on which it will be sold. If sold on an internal system, then the internal system must be developed. If sold on existing systems, it must meet specific requirements — known as “ERC20-Compliant”. Creating a token smart contract generally requires the services of an expert in this type of software development and programming.
- Crowdsale Smart ICO Contract – The company must create a method of transferring or distributing the points. In many cases, the company will contract with an established exchange. The exchange will handle the ICO sale and delivery process. This process is very similar to an underwriting agreement in traditional equity offerings. Most companies contract with a platform that specializes in the storage and sale of cryptocurrency.
- Smart Contract Audits – Maintaining the security and integrity of the token and the token system is paramount. The company will need individuals who can maintain the ICO platform. These are called audits. Failure to conduct routine audits subjects a company to risks of the tokens being stolen, deleted, or corrupted.
- Legal Structure and Regulatory Filings – Most ICOs are considered securities. This is true if they are backed by the issuing company, as most tokens are. This means that the coins are subject to regulation by the Securities Exchange Commission and state regulatory authorities. The company must hire a law firm that can navigate these legal requirements.
- Marketing – This entails making people aware of the offering. There are numerous companies that specialize in getting the word out about the coin offering.
Are There Companies to Help with the ICO?
There are numerous companies that can help with each stage of the ICO process. First, you will need to find the technologists who can develop the token smart contract and platform. You will also need to make certain these individuals are available to run audits on the system. You will, of course, need internal individuals to manage the system. Then, you will need a legal firm to help draft the whitepaper and complete the securities filings. Lastly, you will need a marketing firm to help you get the word out to investors about the ICO.
Begin searching for companies on the internet that profess some level of expertise in the ICO process. If you familiarize yourself with what is required for each step of the process, you can look for service providers who offer those services. You can also look for independent contractors on professional freelancer marketplaces. You will of course need to seek references for any company or service provider. They should be able to produce references and proof of prior work. The marketing and legal firm should have an industry presence and proof of prior work as well.
Undertaking an ICO is very complicated. You will need to build a team to carry out the process. The legal professionals at LawTrades can provide you with the advice and guidance necessary to meet all of the business and regulatory requirements of launching an ICO.