The giant tsunami of retail hysteria around Bitcoin and all things crypto broke over the world in 2017 and 2018. With it came an entrenching of the Initial Coin Offering (ICO) as the new take on the Initial Public Offering (IPO) model. Now that speculative fever has passed, the fundamentals of a blockchain-stroke-tokenomic offer have retained its value. The nature of an ICO is also now known, and less intimidating for investors.
It’s true that the heady days of everyone and his neighbor attracting millions with a token offer have gone. That was a very brief moment in time, as ICO monitors like CoinGecko and ICObench sprang up in an attempt to bring some kind of measurable value and transparent reporting to the arena. The often-encountered face of tokenomics – ICOs – have remained, however, and are growing in the application by start-ups and more established companies, as well.
Despite their demonstrable suitability or preferred status in many cases, ICOs looking for traction in 2019 may face some difficulties. In the UK, it’s relatively easy to get the tech help you need. In spite of London’s powerhouse status as the world’s financial capital, it might prove harder for start-ups to get the funding they need in 2019; here’s why.
Tokenomics 101
An ICO is a different revenue model from traditional share buying. There’s no doubt the ICO is growing in revenue, as such launches have netted $6.3 billion in the first three months of 2018 alone. This represents some 85 percent of the whole of 2017’s ICO funding. Telegram was a huge, $1.7billion contributor to that figure, but even at $4.6 billion remainings, the growth is visible.
Tokenomics determines a start-up’s viability to host an ICO. Tokenomics essentially describes the core value of a start-up’s token – its foundation. Tokens need to manifest at least the theoretical ability to retain value, avoid inflationary ruckus, hold a fundamental incentive for use and be eminently scalable. Tokens lacking any one of these essential attributes will be passed over by today’s buyers.
Along with a viable token must come a viable business model. A product of first-stage research and planning, a scalable business model is essential to attract revenue. The business idea needs to “work,” scale, and grow in a manner pleasing to buyers of the start-up token. Yes, it’s all rather theoretical, to begin with, but even prior to a single token being sold, viable business plans are mapped out as a basic requirement for uptake. A start-up without a logical and effective business model is unlikely to secure funds.
Investor fatigue
Much as the UN speaks of “donor fatigue,” so too is the world of venture capitalism – whether by retail investors or VC companies – prone to fatigue. Scepticism has followed in the wake of rampant distribution of junk tokens since ICOs first saw the light of day. Investors now have a basket of history – however small – from which they can pull matching examples to point to the likelihood of failure. Although the level of scepticism among those eyeing ICOs is undoubtedly healthier than the blind rush that preceded it, it does make launching an ICO harder.
Very much like the previous dot com bubble bust, each new attractive angle on IT seems to provoke human greed and its rampant speculation. Of course, for every millionaire made, there are thousands who lose. The market’s knee-jerk response to new tech advances has its counterpart in a subsequent disinterest – or, at least an extremely wary – fraternity of investors.
A start-up’s primary task in launching an ICO is to demonstrate – in its business plan – that it’s avoided the past hype and mistakes of others, and aims to roll out on a legitimate business model, justifiably tokenised for everyone’s profitable future.
Utility, real or imagined
Business is risky, so the adage goes. It’s true – just because it’s on the blockchain doesn’t mean there’s no risk. Nearly half of the tokens launched to date have crashed inside of six months, a figure gleaned by Boston College researchers looking at tokens’ social media footprint. In simple terms, people weren’t using the tokens anymore. Utility, a word often bandied about in token circles, is the ultimate gauge of a token’s viability.
The utility is a measure of the customer satisfaction gained by employing a company’s service, or goods for that matter. The utility is the litmus test for all the research and development that’s preceded an ICO. If people don’t use something, it has a low utility, and thus low demand. Any ICO unclear of its utility is no more attractive than rolling dice at a casino.
Marketplace identity
Defining oneself as unique in a sea of competition has always been challenging. With ICOs, however, that challenge has sharpened, not receded. Branding may have had its detractors over the years, but it’s an essential component of a successful ICO. The company narrative, the ethos, the brand, and its behavior in the marketplace, are all essential to build differentiation and recognition.
There’s the blunt “invisible potential” scenario that zero or limited marketing produce and leaves a token mostly anonymous a year or two down the line. And there’s the far more nuanced and challenging branding aims that compete effectively for attention by consumers. That level of presence needs to sell itself on the back of its unique attributes. Tokens can look similar and act similarly and almost do the same thing, but it’s essential that benefits over others are highlighted and effectively conveyed to investors.
If no one knows you exist, no one will buy into your ICO. As importantly, if dedicated investors can’t see how you intend to demonstrate your difference in the market place, they won’t buy the token either. Branding is critical for a successful ICO. A weak presence won’t get needed funds in 2019.
The organic growth enabled by a strong, consistent online presence – a professionally populated blog page, a Facebook, Twitter and other social media pages – is an ICO’s ideal growth environment. The more a coin tumbles around social media, the better recognition follows it, and the more likely it is to succeed. Active communities and persistent sharing in a multifaceted approach are baseline duties of any start-up hoping to sell tokens.
ICO roll-out
A last but important point: not only farmers go to market. Every company launching an ICO needs to show investors that it has a viable to-market strategy in place. This means you’ve mapped out the associations and logistics required to get your product into the hands of your customers. You have a legitimate, costed plan to disseminate your product.
Of course, investors will come straight back to see whether your budget can accommodate your plans for roll-out, and tenuous viability between these two points in a business plan will hamper investment, if not kill it altogether. Worse still, many start-ups launching an ICO have no plans demonstrating how they will effectively go into business and – in the absence of such details – 2019 is going to be a very disappointing year, indeed.