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ICO Funding Stages

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Private sales
In private sales, the investments, discounts, and bonuses are negotiated
bilaterally between the project and each investor. The process is similar
to a traditional startup raising a round of angel or seed funding.
There is usually, but not always, a contract that details the legal
agreement between the project and the investor. A popular template is
the Simple Agreement for Future Tokens, or SAFT,228 which was devised
and popularised by digital currency lawyer Marco Santori229 among
others, in an effort towards industry self-regulation. The SAFT is an
agreement that is modelled on a Simple Agreement for Future Equity230, a
template popular with startups. A SAFT document is an agreement that
says that an investor pays money now (the form of money is irrelevant
and can be fiat or cryptocurrency) and will receive tokens at a later date.
The SAFT is a type of convertible note, or more generally a forward
contract. The SAFT itself is a financial security, irrespective of the
classification of the token.
Public token sales
Increasingly, public sales are avoided by those whose tokens may be
classified a security. However, they are still popular with some projects
due to their global reach, ease of fundraising, and hype-ability.
The project usually creates an Ethereum smart contract231 for receiving
funds and displays the address on their website. Investors send money to
the smart contract and receive tokens in a process automated by the
smart contract or a series of smart contracts.

For some projects, the tokens may be ERC-20 compliant tokens recorded
on the Ethereum blockchain. For others, especially projects that are
creating new blockchain platforms, the tokens may be initially recorded
as ERC-20 tokens on Ethereum, to be redeemed later for tokens on the
new blockchain, when the new blockchain is up and running232.
Ethereum’s own crowdsale accepted bitcoins as the funding currency and
the Bitcoin address used was
Public sales tend to be well-hyped. Countdowns and widgets displaying
amounts raised are popular and often displayed prominently on the
project’s website. Social media, chat rooms, and bulletin boards are used
to promote upcoming public sales.
Token pre-sales
Token pre-sales
Pre-sales are the ‘sale before the public sale,’ usually at a discounted price
per token or with bonuses available to investors depending on the
amount invested. They encourage investors to invest at a cheaper price
and form part of the hype for an ICO. An over-subscribed pre-sale is a
great psychological draw for investors in the main public sale.
Both public sales and pre-sales may have some address ‘whitelisting’ as
part of a project’s efforts to identify their investors. Before the token sale,
potential investors click through a series of web pages, declare their
identity information, perhaps upload a picture of their passport, agree
that they do not live in certain countries, accept terms and conditions,
and provide the cryptocurrency address they intend to send funds from.
During the actual token sale, the smart contract receiving funds will only
accept funds from those cryptocurrency addresses that have been
Funding Caps
ICOs will declare funding caps in their whitepapers. These are floors and
ceilings to the amount of funds the projects are willing to accept at any
stage of the sales processes. A soft cap usually represents the minimum
amount of funds needed for the project to go ahead (similar to
Kickstarter’s ‘funding goal’), and a hard cap usually represents the
maximum the project will accept. Not every ICO will have a hard or soft
cap, and some may change them according to demand.
Projects will often create more tokens than are sold in token sales,
keeping some proportion behind in reserve. These reserves may be used
keeping some proportion behind in reserve. These reserves may be used
to reward founders, pay staff or contractors, or to stabilise the price of the
tokens on exchanges. The project may self-impose limits on how fast the
reserves can be spent, a sort of vesting schedule, which offers investors
some confidence that the project is not going to sell a large number of
tokens held in treasury immediately after a sale and cause downward
pressure on the price.
Once a token is listed, the project will have some idea as to the value of
the tokens they hold in treasury. In accounting terminology, these tokens
are held on the company’s balance sheet, and so they impact the equity
valuation of the company. Shareholders, particularly venture capitalists,
may like ICOs because they can create value on the company’s balance
sheet out of nothing!
Exchange Listing
Some investors may buy tokens at ICO to use the eventual product,
service, or blockchain, but often investors want to make money by selling
the tokens at a higher price than they bought them for.
So the ability to easily sell the tokens is important to investors. Although
tokens are immediately transferrable between people once they are
assigned to investors, and therefore tokens may be bought and sold ‘over
the counter,’ the listing of the token on cryptoasset exchanges is a key
event in the lifetime of an ICO because exchanges make the tokens more
liquid. The transferability of the token makes the token different from
rewards-based crowdfunding, such as Kickstarter, where participants are
not able to easily resell their rewards to others.
Listings may be positive or negative for the price of the token and price
volatility can be high in the first few days of a token listing. If the project
is popular, the listing can create an opportunity for new investors to
is popular, the listing can create an opportunity for new investors to
accumulate the tokens, causing a rapid increase in price. If the project is
unpopular, early investors may use the listing as an opportunity to sell
their tokens, causing a rapid fall in price.
Token listings are such an important event in the project that exchanges
can charge projects significant amounts of money to list their token.
Listing fees of over a million US dollars are not uncommon. The exchange
may also provide liquidity services, creating a market for the coins. When
a token is listed, the project will monitor the price carefully, and some
have strategies of buying tokens back when the price is low. The ethics
and legality of this is a popular source of discussion. Traditional
companies may issue shares when stock markets are high and perform
share buybacks when prices are attractive, however, this is not an exact
parallel of what happens in ICO-land, and traditional companies pay
more attention to regulations about disclosure and trading activities.
The number of exchanges, reputation of exchanges, and liquidity on those
exchanges is important for the project and for investors. Investors prefer
to see a token listed on multiple reputable exchanges with large numbers
of customers and lots of liquidity.
Despite the importance of exchange listing, projects tend to avoid
discussing exchange listing timelines, especially those who are trying to
keep their tokens from being classified as securities. This is because
discussion of exchange listing adds weight to classification of the token as
a security, since there is arguably more of an expectation of profit from
It’s worth noting that while traditional stock exchanges impose
requirements on the companies they list, such as periodic public
disclosure of financials, cryptoasset exchanges usually do not have such
listing requirements, nor are the exchanges obligated to perform any due
diligence on projects whose coins they are listing. Some cryptocurrency
exchanges are happy to list any token, even those with a low likelihood of
success (known colloquially as ‘shitcoins’) because the exchanges make
revenues from trading fees, and so are indifferent to the quality of the
project or the absolute value of the tokens they list. The exchanges make
money as long as there is price volatility.

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