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Raising funds with crypto: how is it different from traditional methods?

jean pierre fumey

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For entrepreneurs, funding their venture is among the most difficult tasks they have to deal with, no matter how great their business idea is. This is because traditional fundraising methods take a lot of time and effort. For this reason, many business owners find cryptocurrencies an appealing alternative to raising funds. While many were skeptical about digital assets like Bitcoin in the beginning, more and more people are now embracing them fully. According to forecasts, bitcoin price could gradually surge in the next few years, potentially reaching $305,981.72 by 2030.

It isn’t surprising that more entrepreneurs use cryptocurrencies for fundraising, given that they offer numerous advantages. For starters, anyone can use them as long as they have a stable Internet connection, which allows businesses to get money from a larger pool of donors. Moreover, cryptocurrencies are efficient, making the fundraising process easier and quicker than as opposed to traditional methods.  

Fundraising through traditional methods vs ICOs

Businesses can raise funds from angel investors or VCs (venture capitalists), with both providing capital in exchange for owning a portion of the enterprise. While VCs invest in early-stage ventures with major growth potential, angel investors tend to focus more on the vision of a business instead of its soundness. Raising funds from angel investors and VCs comes with a great advantage: besides providing capital, they also give mentorship on how you can run a successful business. However, they also get to make decisions about the company and can cash out if you face difficult times in your venture, which can be a significant downside.

There is another alternative to raise funds, namely through ICOs (initial coin offerings), which allow ventures to sell cryptocurrencies and get investment capital in exchange. ICOs have become a popular fundraising method due to the advantages they offer. They are inclusive and global, which means anyone can access them. Moreover, they are efficient, allowing ventures to raise significant amounts in a timely manner. At the same time, ICOs provide flexibility, enabling businesses to personalize their offerings based on investors’ needs. Despite their incredible benefits, ICOs come with a disadvantage, too: they are unregulated and, therefore, risky. However, unlike IPOs, ICOs have a low barrier of entry and can be run fast (within a few days), making them appealing to project owners.

How to launch a lucrative ICO

An ICO can be an excellent method to raise funds for your company, but before using it, you want to ensure first that it fits your business model. The process of launching a successful ICO involves the following steps:

Decide whether an ICO is the right approach for your venture

It’s essential to mention that an ICO isn’t for every enterprise. Although launching it is more straightforward compared to the traditional IPO, that’s not a legitimate reason to bypass the strict regulations surrounding it. If you’re considering using an ICO, you should determine the actual utility of the token. If its only purpose is facilitating the sale, you shouldn’t opt for an ICO. On the other hand, if the business token provides a valuable use case, you can proceed to the next step.

Have an experienced team on board

Now that you know the token has an actual use case, it’s time to get experts on board. There are a lot of tasks to do, from the development of the product to the promotion of it. Therefore, it is vital to have experts by your side who know how to launch an ICO successfully.

Check regulations around launching an ICO in your country

In some countries, there are strict regulations regarding investment security. On the other hand, China has banned ICOs, so before running an ICO, you should first review the specific regulations in your country to ensure that legal obstacles won’t hamper your path.

Create a roadmap for your project

The project roadmap acts like a timeline for potential investors, allowing them to track their progress and see what they can expect from the project as it moves forward. As long as the team meets established milestones, investors will keep remaining confident. This isn’t only beneficial for funding, but it also helps keep the crypto community engaged and enthusiastic.  

Write a white paper

A white paper is needed to build investors’ confidence, so it should include details about the project, such as what it is about and the problems it seeks to solve. Moreover, it can also talk about how investors can support the project. Before writing a white paper for your ICO, reviewing the ones published by competitors and getting inspired by the most successful can be useful.

Create a digital presence

A website is a must-have for any crypto project because it will serve as a promotional base, allowing investors to learn about your project. Building your online presence is also essential to create a crypto community that will support you on your journey.

Choose a token sale model

Different models with fixed rates are available, but you can also consider a hybrid one if that suits you better. Just make sure to pick an investor-friendly token sale model, as this is essential to succeed.

Use a smart contract to avoid exploits

The details about your project should also comprise which blockchain you’ve chosen for it. Many choose the Ethereum blockchain because it is a reliable way to deploy smart contracts. Consider hiring a developer to ensure the smart contract will not be susceptible to potential exploits. This is important because you don’t want unexpected issues to plague your ICO on the launch date.

Launch your ICO

After going through all the previous steps, you can finally launch your ICO. Keep in mind that this doesn’t guarantee your project will reach its fundraising goals. If it does meet your expectations, it’s essential to keep focusing on strengthening the community and upgrading the project.

The bottom line

ICOs can be a great funding method for businesses, but certain downsides are involved, and it’s vital to be aware of them. Once you understand them and decide an ICO is the right decision for your venture, following the steps above will help you launch your ICO successfully.

 

Jean-Pierre is a polyglot communication specialist, freelance journalist, and writer for startup.info with over two decades of experience in media and public relations. He creates engaging content, manages communication campaigns, and attends conferences to stay up-to-date with the latest trends. He brings his wealth of experience and expertise to provide insightful analysis and engaging content for startup.info's audience.

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