Token sales can cost upwards of $1 million to undertake. This is how and where these funds are spent…
Initial coin offerings (ICOs) have fundamentally changed the way start-up businesses raise capital. But just because a company undertakes a token sale doesn’t guarantee success, and often organisations underestimate the cost of launching an ICO.
In our experience, there is a link between the success of an ICO and the initial capital that is available at the start of the process. And while the cost of undertaking a token sale differs from company to company, you won’t get much change from $1 million.
Below, we break down how this capital is spent:
The first cost to bear is the technology behind the project. For an ICO to be successful you will need to have a beta version ready. This involves R&D costs as well as the necessary testing costs for creating the beta product.
A detailed, professionally written white paper is invaluable to an ICO. The white paper allows you spell out your project’s value proposition and helps investors properly understand your business, the token sale and how you will use the funds raised to drive growth post-ICO.
Every ICO needs to have legal support to navigate the token sale, ensure full regulatory compliance and develop appropriate rules of engagement with investors, including the terms and conditions of the token sale.
Bringing together the various components that make a successful ICO is a challenge in itself. Having good consultancy partners will help overcome these hurdles, while also advising on how to avoid the financial and regulatory pitfalls.
Because the ICO ecosystem is still young, bank accounts are difficult to attain and therefore the fees involved for opening accounts are high.
This is the biggest cost when launching an ICO. Without marketing and PR, investors will be unware your token sale is happening in the first place. Costs will cover the fees charged by marketing agencies and experts, as well as any adverts taken out. Influencers are also considered a marketing cost.
A good board of advisors is necessary, both in terms of attracting potential investors as well as providing the team with the advice of high-level and experienced professionals. While part of their fee may be paid through tokens raised, most will also ask for an upfront payment.
The token/smart contract
Developing tokens/smart contracts is challenging not only because of the difficulty of delivering a secure token, but also because the technology is new. This means the supply of good developers is scarce. It will also take a developer time to create the token, and as the old saying goes – time is money.
Audits for the ICO and token are imperative steps that cannot be avoided as they ensure no security bugs and flaws. Having a reputable auditor does cost, but it will also provide reassurance to potential investors that you have made serious efforts to halt any vulnerabilities that might exist in the protocol.
Different jurisdictions impose different regulations for ICOs, as the interpretation of the nature of digital currencies varies greatly between countries. Not only does this add significant value to a project but also entails big costs.
K. Token launch platform
Token platforms and exchanges will help increase visibility of an ICO, but most will take both percentages of raised tokens as well as upfront fees.
Community management and engagement is essential, and not just pre-ICO. It is vital this continues post-ICO because the community will help sustain the buzz around your token sale. Having a dedicated team that engages with the community on social channels and maintains good PR is necessary but can be expensive.
While the cost of listing a token on exchanges varies, what is certain is that most exchanges do charge and often require payments up front.
Just like any other business venture, ICOs need to pay employees. Although some payment can be made with tokens raises, employees will need to be paid during the ICO and before the launch of the token sale so it is important to reserve some capital for this.