What to do with your ICO Funds
Among the considerations when planning the launch of your ICO
is where your target raise figure should be set. Too many startups do not approach this question with enough thoroughness, instead of establishing a fairly arbitrary figure that leaves them either over-leveraged or high and dry when it comes time to pay operating costs.
The Rhyme and Reason of Setting a Target Raise Figure
Whittling down a target raise amount that is both justified and sensible should be a levelheaded process. Those motivated by greed or grandiose visions of what their post-ICO operations will look like are liable to set their target too high. Buyers and investors must feel that they are getting strong value for the money they put forth in exchange for a token, regardless of whether it is a security or a utility token. Establishing a soft cap and correlating target raise figure that does not reflect the company’s value is unlikely to attract the token buyers necessary to get the project off the ground.
Conversely, being too conservative in setting the fundraising target for an ICO is futile. Failing to raise the sum that will be necessary to fulfil daily operating costs defeats the purpose for which the ICO was established. In other words, taking restraint to an extreme can be just as harmful as showing not enough restraint. For these reasons, thoughtfully outlining your future costs and nailing down a vision that is neither grandiose nor spartan is a must before launching an ICO.
What is the Purpose of Your ICO?
Have a clear vision of what the purpose of your ICO is. Remember, it shouldn’t be to pay yourself or to renovate the company’s office space unless that is going to lead to a tangible payoff in terms of token value. Making the difficult decisions regarding what ventures are worth funding via an ICO — perhaps it’s marketing, advertising, strategic expansion/relocation, strengthening a blockchain, improving functionality, or something else — is an initial step toward setting a sensible target fundraising goal.
Establishing the Hard Cap
The hard cap, the term for the dollar amount needed to completely launch your project, should be seen as a first-phase investment, considering that setting this figure too high can scare off potential buyers. However, the hard cap represents the figure you will need to deliver an ideal version of the project, so giving yourself some leeway for expenses is important. Setting this figure appropriately requires detailed foresight into the various costs that will be required to complete the project, and complete it right.
Establishing the Soft Cap
The soft cap represents the minimum amount of fundraising that will need to be raised from the ICO in order for the most basic acceptable version of your project to be delivered. Far from ideal, you must still set your soft cap in a range that is high enough to deliver the Minimum Viable Product (MVP) without cutting critical features or compromising the integrity of the project. However, this figure must also be set reasonably low as to be attractive to investors seeking a good deal.
How to Proceed Post-ICO
Again, it’s important to note that the hard and soft caps are determined by what you plan to do with your ICO funds. Justifying the fundraising to potential investors by convincing them that you won’t be using their money to take upper management on a cruise, but instead will use it in a way that effectively grows the company, is critical to establishing trust and attracting buyers. So establish how you’ll use those funds before you begin establishing targets, and then once you have those funds, do as you say. Trustworthy companies are able to establish more funding rounds in the future, so it’s important to remain within the parameters of the project at hand so that you can set yourself up for even more success.
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