Last year, the cryptocurrency startup raised US$80 million for its ICO, so its team definitely know a thing or two about running ICOs right
When cryptocurrency startup TenX launched its Initial Coin Offering (ICO) — a fundraising mechanism that involves the company issuing virtual tokens to contributors — it raised a whopping US$43 million in a mere seven minutes.
The company went on to raise another US$37 million — giving it a total of US$80 million of funding just from the ICO alone. But how did the founders managed to raise such a jaw-dropping amount? How were they able to generate so much hype?
It is about creating value, says TenX’s Co-founder and President Dr Julian Hosp. And he’s not just talking about the product TenX has built — which is a physical card that allows users to make offline and online transactions using their crypto funds.
Dr Hosp is talking about the fact that the company actively reaches out to the tech community as well as the general public — to inform and educate them about the cryptocurrency ecosystem and its ongoing developments. It’s about raising awareness about the space they are in (which is valuable since the crypto world is still nascent).
In an interview with e27, Dr Hosp provides a detailed breakdown on ICOs and what he did to turn TenX’s ICO into a runaway success.
Here is the edited excerpt:
First, let’s go to the basics: what is an ICO? How is it different from an IPO?
I think for startups there are different ways to raise funds: You can find VCs, you can seek angels, you can get a grant or debt, or you can do an ICO. Every kind of fundraising has its upsides and downsides.
The difference between an IPO and ICO is:
An IPO is a very end stage fundraising. If u want to do an IPO you have to be an established company. You really have to have some transaction, normally you are valued at double-digit billions, or double-digit millions/triple-digit millions.
Right now an ICO is one of the other ways where an early-stage company can receive significant amounts. But that comes with a lot of challenges:
You become quite public, you are going to undergo a lot of scrutiny. Recently you have all these token buyers. And you have hundreds if not thousands of them, who are all going to question what you do and challenge anything that you do and they kind of push and try to pinch you in any way possible.
This is obviously they buy this token in hopes they go up at in value and so that is just really really important.
So there is a lot of pressure and you are missing the lead figure or key figure that can really advise and support you, but you give little to no equity.
We at TenX, we did a traditional angel round and a traditional seed round prior to that.
And that was really good because we had strong advisors and some really strong people behind the company — and that helped us, especially also during our ICO. I really recommend that but it’s not a must.
In an ICO, many times you can raise funds easier and you have to give away less equity but you are really missing the expertise and the insider kind of people that you would get in an angel or seed round.
How many stages are there in an ICO?
I would probably say 5 stages. The first stage is the entire preparation stage. And that is my opinion, should be the longest stages. For example, our preparation stage was around six months.
And that means you do legal preparation, you prepare technical slides, you prepare marketing, you prepare financials. You kind of just prepare, prepare, prepare. And that doesn’t include your product or customer slides.
That’s a very intense stage. Because generally speaking, you have no funding at this time, it’s a time where you have to work, work, work, and you see nothing yet. Because you just working, and you are hoping to get something out of it.
Then the second stage is the pre-sale stage or pre-ICO stage. That is if you do it right and you have gained a lot of traction and attention.
And what you try to do is: You try to get your most loyal followers and you try to get them in early. And you kind of use them as advocates to sort of spread the word. The pre-sale stage can be a month or two weeks prior to the actual ICO.
Then you have the entire ICO stage.
The entire ICO stage is the craziest time and it is the busiest time.
For us, it was 7 minutes but for other companies, it might be hours or days or weeks. But at this time, we kind of cash in all the work. This is when you get all the money, this is when the results come in, right? This is when you cross the finish the line.
Depending what settings you have for the ICO. Maybe you have a soft cap, where you leave it open for another 24 hours or week, or hard cap, where you say we are definitely going to close it or when we reach this amount or date.
Once an ICO finishes, you have the kind of intermediary phase.
That’s the stage between the ICO and the token being traded, being accessible to secondary markets to buyers and so on. This phase can be very short, for some companies it can be a day; for TenX it was around a month.
And the reason why it took a month because it allowed us to resettle and deal with the crypto exchanges and to be sure we had everything straightened afterwards and so on. This was important for the intermediary stage.
And then you have the post-ICO stage. And that happens afterwards and that is obviously the ongoing stage.
The ongoing stage is the stage that really determines how you perform as a company. Are you someone who is going to live up to your word since this is not a real investment by token buyers — there is no investment agreement or investment contract. So it’s really them trusting you.
Then comes another important question: how much are you going to focus on the token price vs. delivering value.
This is such an important kind of differentiation. Do you want to deliver value or just pump up the price of the tokens?
My recommendation to a company is: To really focus on delivering value and not focus on pumping on the price; focus on delivering value and the price will go up naturally.
And that is so hard because you have thousands of people that own your tokens and they are going to pressure you because. So, you have to keep cool and just focus on delivering a solid product.
What exactly do you do during the preparation phase?
There is three things you need to get right in an ICO:
The first thing is you need to get the technicals right. Which means the smart contract, which is very standardised, takes maybe two days of work. That is very straightforward.
The second thing you need to get right is the entire token structure, and that combines legal and financials. This is also very standardised. This can be done by a legal firm within two to three weeks or maybe a month.
The majority of the work is marketing and community management.
The entire six months for TenX was really about creating attention, creating hype, making sure people know about the ICO.
It’s about delivering value. I think what so many companies are doing wrong is they are always trying to say: “this is our ICO you should invest in our ICO”.
This is wrong. You need to go and educate people. We educated people on cryptocurrency, we educated people on what we were doing, we formed partnerships with other companies. You can do airdrops where you kinda drop free tokens on to other companies.
So it’s really about doing videos, doing a blog, having a vlog. Really creating a traction and making sure that things happen in a really good manner. It just takes time.
You can’t create attention overnight. If you do this, it’s very short-lived and maybe also very expensive because you have to invest a lot of money.
We didn’t spend a dollar on marketing and this was because we had such an organic growth.
How do you feel about Facebook’s ban on cryptocurrency advertising?
We would have never used Facebook anyways. Like I said: make good videos, do airdrops, make partnerships, etc.
Trust and transparency are everything even in blockchain. Our transparent and authentic communication had a massive impact on the success of the token sale. We realised that in the blockchain environment that is supposed to be “trustless”, people actually want to trust someone.
But in the end, it does not helps you if you have a great product but the team is not reachable. That’s why we put all of our top management people into customer-service roles before the token sale to make sure people knew who we all are. We were doing regular newsletters, YouTube videos, Facebook posts, community management on our Slack channel, WeChat, and so on.
Going on Facebook and screaming about it saying: “Hey listen to me this is my ICO, you should invest.” is not helpful. No one cares. Not by doing banner ads either –(no one clicks on banner ads. I don’t know when was the last time you clicked on a banner ad but if I don’t do it unintentionally I never click on them. They suck!
What kind of tokens are there? How do you generate and sell tokens?
You can either create your own blockchain, which is what very few companies do –ethereum did this when they had their ICO. But because it takes a lot of work and a lot of effort, what most companies do is they use a platform like ethereum and they run what is called an ERC20 Token on it.
What the ERC20 token is it is a smart contract, which is nothing else but a computer programme. So you have a computer programme that runs on ethereum and tracks how many of your virtual tokens everyone else has.
So you create an ERC20 contract which is standardised. I can create an ERC20 contract within half an hour. There is also a pre-written contract template — you can google it. There are a lot of developers who pre-write and audit the contract for you.
You just have the contract and then you have to fill in a few things. So normally an ERC20 contract has six things you have to define:
- The ticker symbol. For example for TenX. it’s ‘PAY’.
- The name. For us it’s TenX PAY.
- The total supply of tokens. At TenX it’s around 200 million tokens.
- How many tokens the owner of the contract gets. Most of the time you give 100 per cent to the owner. That’s what you do because then the owner can distribute the tokens.
- How many decimal places the token has. You can have eighteen decimal places, for example, meaning you can really split those tokens super small fractions.
- Then whether you can create more tokens later on (which is a soft cap).
Once you have defined these six features, you turn them into a smart contract that’s code, and then you run that on ethereum and you execute the contract. You pay around US$100 because you need a bit of ether to execute the code, and then that contract is live.
So when someone sends you a specific virtual currency, tokens are sent to them. For TenX, it was for every ether a person sent, they received 350 PAY tokens back.
Do companies have to convert their ICO funding into fiat currencies immediately?
They don’t have to do it immediately; they can do it at a later stage. We converted half straight away and kept the other half in ether.
There are some companies who risk it all and when ether goes up a thousand dollars they get rich but if ether drops to five dollars they lose. And that is a relevant risk and so many people don’t understand that.
We at TenX we always take a risk-adverse approach.
How do you attract the right kind of contributors to your ICO?
It’s about communication. It’s about being very clear in sharing your values and what the company stands for what u want to achieve.
The most dangerous thing you can do is that you try to get everyone. You should never try to be attractive to everyone. But you should be very clear on your target audience.
To give you a clear example. We at TenX, we are very clear that we want long-term buyers, who buy our token and hold and don’t try to day trade. They see this as a five, six, seven-year thing. That is what we look for. Not for a short-sighted kind of people who want to get rich overnight.
I think if you communicate that clearly, yes, you are gonna piss off a lot of people who don’t like that, who would love to have the fast riches overnight. But We attract the people who see the solid kind of company and attitude behind it.
It all comes down to communication.
Last advice for entrepreneurs who want to conduct an ICO?
My advice would be for them to understand the virtue of patience. Not go for the quick money. Maybe be a bit patient. Wait one month longer or wait two months longer. Maybe try to create an MVP (minimum viable product). Don’t do an ICO straight away just to raise money.
I can give a story there. We initially wanted to do an ICO in March last year and then we had Co-founder of Ethereum Vitalik Buterin say to us that he would be interested to invest into our company, but only if we did the ICO three months later.
And initially, we said: “Man, we are already getting US$10 million from investors, so why not do the ICO straight away?”
But we waited, and suddenly we had so much more: We had more customers, more credibility and we had a product. We could do the ICO in June and get eight times more money and I’m glad we did.
I really recommend doing the same thing.
Image Credit: TenX
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