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After six months of planning an Initial Coin Offering (ICO) and collecting pre-ICO funds, I decided to abort its launch. I don´t regret it.
By June 2017, the crypto world was in effervescence. A few ICOs had raised insane amounts of money in weeks for projects only substantiated by a simple presentation. Words like Bitcoin, Ether, ICO started to appear in all non-financial publications. The world of crypto had entered the realm of mainstream people.
June 2017 - Miami. I am discussing my latest project with a friend relaxing by the pool. I had been building a social media community for martial artists called Martial Tribes. It was reaching two million Facebook followers. We were broadcasting fights and seminars live from all over the world with a very high engagement. The prospect of it becoming a mini-TV channel looked promising.
As I was contemplating the possibility of raising money to generate more content and grow the community to 20 million followers, my friend mentioned the idea of launching an ICO. I did not know much about the crypto world at the time and did not own any coins. But the idea was intriguing.
July and August 2017. I started to dive in the world of crypto, reading, networking, and putting together the plan for a utility token, essentially a loyalty program, to benefit Martial Tribes' members. The project was taking shape and I needed to prepare the infamous 'white paper', a 20-page document describing the ICO proposal.
The first quote I received for a white paper: GBP 3K plus 1% of the money raised just to re-write a 20 page document essentially provided by me...
I eventually found a more reasonable copywriter for GBP 1K. The white paper was taking form. Martial Tribes already had an audience eager for engaging content. If we could provide a service exclusive to our token holders, if that token was in limited supply and we could ensure an increase in demand by growing our community from two to twenty million members, then the token would have a chance to appreciate. I estimated that raising two to three million dollars would do the job.
September 2017 - London. The frenzy around ICOs was getting intense. It was difficult to find an agency with capacity to handle our project from end to finish. Agencies were inundated with demand for services. Their price seemed to increase weekly. I finally connected with a friend in the process of launching his own ICO who had invested in a new ICO agency. I visited him and his team in London. In a week, we finalized the white paper and the funding plan. The path was clear. The ICO was scheduled for January or February 2018. We estimated the budget to be $250K in oder to raise $3M. Some questions still remained on the regulatory side and the jurisdiction to use. We researched the situation in Switzerland, Gibraltar, Singapore, the Baltics...
October 2017 - Hong Kong. The marketing plan was being developed. We contacted influencers, started working on a website and an explanatory video. I collected quotes for legal services. They ranged from $20K to $100K+ for the same services. For every service, we received inflated prices, often accompanied with requests for an additional 1% of the money raised. At the same time, the price of bitcoin was going through the roof, to the point that traders were becoming very demanding with ICOs: after all, why take risk on alternate coins when bitcoin, the leading coin, is offering amazing returns? Only if you get an even better deal...
November 2017 - Hong Kong. The money from early investors attracted by a generous pre-sale discount is starting to come in. Some Wall Street insiders who practice martial arts contact me. They have affinities with the Martial Tribes community and offer to help raise money. Things are looking good.
Unfortunately my friend's agency is struggling to meet the deadlines and costs. I start speaking with larger agencies in Hong Kong. One of the main players is responding positively to the project because of our existing audience and the potential to increase it 10 folds with proper funding. They recommend raising more money: $20M to $30M! That way, their $750K to $1.5M(!) fee will be justified But the project only needs $3M. No problem. They will help beef it up. They just need a few more months to prepare a slickier presentation...
At the same time, a lawyer 'expert' in crypto, advisor to many local ICOs, suggested to launch the ICO in Hong Kong and offered his services for $50K plus expenses plus 2% of the money raised.
He will just make recommendations on the structure of the deal, but would not issue a legal opinion for this price.
I am still not sure why anyone needs a lawyer who does not issue a legal opinion....
December 2018 - Hong Kong. The course of bitcoin is exploding. There is a frenzy in the public at large. It seems many people are using their saving to buy crypto currencies. Traders are busy optimizing their portfolio and generating insane gains. It is madness all around. Hard for most projects to pierce through the noise. Worried about the budget passing from $250K to $1M+ in three months, I decide to delay some key spending decisions. The ICO will be pushed back to the second quarter in June. All early investors are ok with it.
January - February 2018. The public mood has changed. Bitcoin lost 50% of its value in days. Yet all the service providers remain enthusiastic. Their prices keep increasing. The regulatory environment remains uncertain: we cannot accept money from US or Chinese residents. Funds from Hong Kong and Japan are also questionable...
March 2018 - Hong Kong. I decide to abort the project and return all funds to early investors. I cannot reconcile myself with a $30M raise for the current project. I cannot see how a significant appreciation of the coin could happen when the starting value is so high. I also don't like the continuing uncertainty of the regulatory environment. I can visualize myself with disappointed investors and major legal headaches. That was no my goal.
I prefer to sleep well at night...
5 things I learned about the ICO world
This whole experience had a cost but in the process I became knowledgeable about the industry. In particular, I learned that:
1. Anybody can become an expert in crypto currencies in two months. This is a completely new sector. It moves very fast. The first ICO took place two years ago. After two intensive months, you will know more than 99% of the people. By definition, you will be an expert!
2. Few ICO organizers really think about the value to investors. That does not mean that ICOs are scams. Most current projects do have a legitimate proposition. Their risk profile is just very high. Probability of a positive return is extremely low. This is not an issue for organizers, they will get their money. The attitude is that it is up to investors to do their homework and assume the consequences of any decision.
3. Greed is everywhere, particularly on the investors' side. They want quick (and large!) gains. They are willing to listen to the enchanting sound of any siren announcing a promising future.
4. The service providers are the one making money. Their expertise is limited, they are learning on the way. Their fees are insane, and they are mostly protected from any legal backlash. They are the true winners for now, but competition is bound to get tougher.
5. Timing is everything. If I had started the project six months earlier, we would probably have completed the ICO at a reasonable cost, raised significant funds and also made a killing on Bitcoin and Ethereum. I would also have become a 'semi-god' in the crypto world like anybody who has already launched a successful ICO (only 60 ICOs were launched before 2016). Just a few months too late...
Opportunities pass and go. Some are smaller, some are bigger. They are all useless if you do not latch on to them. My ICO journey did not benefit Martial Tribes, but it helped me land an interesting consulting assignment on a large fintech project. Proof that any skill learned rarely goes to waste...
Sometimes I wonder whether I would get involved in a new ICO project. I have no principled issue against it. ICOs are just the latest way to raise funds for a venture. It is not the method of raising money that matters. What counts is whether the project is worth doing at all.
Please share with us any experience you had with ICOs, either as an organizer, investor or service provider. Please keep it genuine and leave the sales pitch for other websites. Thank you!