As an entrepreneur in the blockchain and crypto space, you have probably investigated raising funds through an ICO. But, how much does it really cost to do an ICO? There is very little information out there.
Initial Coin Offerings (ICOs) have a reputation among entrepreneurs as the new and easy way to raise capital without losing equity. Compared to traditional funding sources such as venture capital and bank loans, ICOs, on the surface, seem somewhat affordable and not too difficult to set up.
However, many founders and entrepreneurs are unaware of the actual costs of launching an ICO. Beyond attracting a sufficient number of contributors to meet a fundraising goal, a significant budget needs to be set aside to ensure that an ICO is safe, compliant and built on a solid technological foundation that provides real value to a community of contributors.
While there is no definitive ICO budget to guarantee a project’s success, this article will cover some of the core ICO components that you should keep in mind when starting out your journey or when deciding whether an ICO is the best route for your project.
This step should be the first stage in your decision-making and budgeting process. Before you spend $300,000 or more, allocating a small proportion of the budget to ensure your concept is feasible will help you determine if the ICO route is your best option.
If you already have an existing product or service, is it enhanced by a blockchain? If you are at the ideation stage, how would utilising a blockchain in your product help to solve the problem that you are addressing? Would your target audience and target markets be convinced to adopt your product and to continue using it in the long run?
The estimated budget for conceptual development: 15-75k depending on the complexity of the technology and token economics underlying the product. If it’s a simple project and you have an experienced in-house team, you can potentially develop the concept in 2 weeks, which means cutting costs to less than 10k (depending on employee salaries).
Potential resources needed: Blockchain research scientist with knowledge of token economics, business models, and most importantly, how blockchains work; blockchain lawyer with an understanding of existing blockchain laws and best practices.
ICO Development – Technology Development
After conceptual development, the technology development component involves planning and research into how the architecture and technology of your blockchain platform will work. Establishing credibility among your community and attracting loyal supporters to your product requires you to share a detailed understanding of how your technology works.
Some essential items (non-exhaustive) to consider include:
- How blockchain technology solves the problem you are addressing;
- Technical details of how your platform works;
- The scope of your project and a timeline of the milestones in your development;
- Token issuance economics, which includes token economics;
- Legal aspects of the token sale along with terms and conditions;
- Security frameworks involved in your platform.
Estimated budget: 25-50k depending on the complexity and scope of the problem you are addressing and the number of industry professionals you require to tackle the problem.
Potential resources needed: Blockchain research scientist, blockchain architect, blockchain security engineer, blockchain lawyer.
ICO Development – Legal and Compliance
Essential considerations of this component include corporate formation (e.g. jurisdiction of the company), legal structure of the token offering (e.g. securities regulations for security tokens), token offering documents (e.g., terms and conditions of the sale, risk acknowledges) and frameworks for Know Your Client, Anti-Money Laundering (KYC/AML).
If you have been keeping up with the latest cryptocurrency and blockchain news, you will come to realise that laws and regulations on cryptocurrency and ICOs around the world are rapidly evolving. It’s rare for a week to pass without news of lawsuits against non-compliant ICOs, discussions on classifying some tokens as securities, or countries prohibiting their citizens from participating in ICOs. (See this article for more on law and legislation for ICOs)
To protect your team and launch a compliant ICO across multiple jurisdictions, be sure to use lawyers or legal advisors with extensive knowledge of best practices and regulations surrounding blockchain and cryptocurrencies. Providing sound blockchain legal advice requires specialised knowledge – although many may claim to be experts, they are rare and hard to find.
Estimated budget: An estimated 100-200k to engage a competent advisory/consultant in legal and compliance, and also depending on where the lawyer is based and their hourly rates. Some reputable law firms are charging up to 400k for this component, but you do not necessarily have to part with this amount of money as long as you are reasonably assured that your legal counsel is keeping up with ICO best-practices and regulations.
Potential resources needed: Blockchain legal and compliance advisor(s), in-house legal counsel, compliance manager, data privacy manager.
ICO Development – Token Sale System Development
This component is more technologically demanding, mainly because the platform has to be stable and secure enough to support an increasing volume of transactions.
The first step involves developing a landing page, i.e. a promotional web page to tell the story of your product and the reason for the ICO. This landing page should also direct the user to your token sale platform, where the buyer can access their wallet and undergo the KYC/AML due diligence and compliance procedures required for the ICO.
This platform should also include an admin portal that allows you to manage your token buyers and deploy the smart-contracts that will govern the creation and distribution of tokens to your buyers.
Estimated budget: 65-100k to launch off existing platforms that could provide you with a white-labelled platform to launch the sale. Developing the platform in-house would cost more than this and require a longer development timeline.
Potential resources needed: Product manager, UIUX designer, software engineers, copywriters, content writers.
ICO Development – Cybersecurity Management
About $400 million worth of funds (10% of the total amount raised in ICOs) have been stolen from ICOs between 2015 & 2017.
Cybersecurity is critical. It involves smart contract and security audits, penetration testing, security monitoring and incident response.
Potential security flaws can be patched up through audit and penetration testing, while security monitoring and incident response measures help you prepare to take action should an attempted attack on your platform occur.
Cybersecurity management can get highly technical so here’s a webinar on ICO Cybersecurity by Chad, the Head of Cybersecurity at Horangi and Zach, Chief Development Officer at Intrepid Ventures. The webinar helps to unpack the essentials of what to look out for in cybersecurity management and covers cybersecurity best practices as well as ways to future-proof your ICO and blockchain project.
Estimated budget: Any budget allocated to preventing yourself from getting hacked is money well spent. The bare necessities of cybersecurity measures require around 40k, although it’s never a waste to spend on additional efforts at protecting your infrastructure.
Potential resources needed: Experienced cybersecurity professionals/engineers/firms, preferably those who have worked with blockchain and crypto projects previously.
ICO Development – Digital Marketing and PR
This is where things get a little crazy and unexplainable. A quick Google search returns thousands of results where marketing and PR firms promise high social engagements or to grow your followers by thousands. These offers do sound tempting until you read on and find that some could charge a significant number of Bitcoins (1 BTC = 6.8k USD at the time of writing) for each service.
It’s vital to beware of scams, overpriced marketing agencies, and those that use methods to artificially inflate your social media numbers through bots and fake followers.
Common domains to allocate costs to include – bounty programs, ICO listing sites (top sites could charge up to 7 BTC/month with questionable effectiveness), forums and social media posts, press releases, content distribution, paid advertisements, and engagement through events and conferences.
Estimated budget: The costs can be as low as 40k if you DIY with an in-house team, or up to 400k depending on the scale and scope of marketing and PR efforts you need, as well as external organisations you hire. We strongly encourage you to closely monitor analytics for traffic to your landing page to identify the most cost-efficient channels and mediums to devote resources.
Potential resources needed: Bounty program manager(s), social media manager(s), content manager(s), community manager(s).
ICO Development – Investor/Buyer Relations
This component involves drafting your pre-sale PPM offering, order book building, investor outreach and institutional sales, as well as listing on exchanges. If you are offering security tokens, you will be securing investment through investor relations; if you are offering utility tokens, outreach to your buyers will be more marketing-related.
Building relationships with investors and contributors to your ICO requires technical blockchain knowledge and a deep understanding of the product, as well as the ability to present this information in a relatable manner.
Accomplishing the above is no easy task. Investors/buyers could probe into the size of your social media followings as a gauge of the success of your project (we will cover the accuracy of these metrics in future posts). As such, ensuring that your team has adequate knowledge of the product is very helpful.
Estimated budget: 55-100k would be a reasonable budget to allocate to this component. If you are aiming to list on exchanges such as Binance, the cost would naturally be much higher.
Potential resources needed: Investor relations manager(s), finance manager(s), advisors who could provide insight on investor outreach for blockchain and ICO projects.
Team and ICO Advisors
It can get intimidating and be challenging to navigate the ICO labyrinth, especially with the fast pace of changes sweeping through the industry. Knowledge from multiple fields of expertise would be essential to keep you covered in all aspects of launching an ICO. Advisory firms for ICO projects are increasingly commonplace to guide startups.
While ICO advisors can be helpful in getting you started, the seemingly low barriers to entry mean that you need to be more critical in evaluating the quality and expertise of these ICO advisors in providing value to your project.
To ensure you are receiving sound advice in the domains of business, legal, product design, engineering, marketing, security, content, and more, it is always a good idea to look at the experience and background of the advisory team you would like to engage. Check out this article on how to choose your ICO advisors and blockchain experts for more detailed information.
When building a team, remember that it takes more than code and tech for an ICO to be a success. Most blockchain startups live in a bubble with zero acknowledgement of the business realities around them. Go for a balanced team with people from multiple disciplines.
Launching a safe and compliant ICO, it could take 3-6 months from strategy to ICO (excluding the time required to build and launch the platform). This timeline also depends on the existing expertise and efficiency of the core team, as well as how well the company collaborates with external partners involved in the project.
Preparing for an ICO launch is hard work, and I hope the above overview was able to provide some concrete insights to get you started. If you need additional information, check out the guides on blockchains and ICOs we have put together, or drop me to message if you would like me to cover a specific component of ICOs in more detail.
Chat with me about anything blockchain, marketing, and design on Linkedin or drop me an email at [email protected] I always look forward to meeting people to learn, discuss, and share. Do connect if you are interested in learning more about blockchain and cryptocurrencies too!