Initial coin offerings (ICOs) have become the go-to funding option for blockchain startups who are looking to raise funds to take their project from an idea to a functional product. The success of ICOs, however, varies greatly. Some raise substantial funds while other miss their funding targets by miles.
One important factor that plays into the success or failure of an ICO is how much capital the startup has available to conduct a successful token sale. So, how much does it cost to launch an ICO?
As you can see from this table, the quick answer is anywhere from $100,000 to $500,000. Here is why.
What Are the Essentials Required Before an ICO Launch?
To give your ICO the best chance at success, there are a number of factors you have to consider, including:
- The technology behind the project
- The whitepaper
- A strong online presence
- Appropriate communication channels
- The token
- Third-party security audits
- Regulatory compliance
The Technology: The first, and arguably most important, factor is the technology behind the project. It is important to consider the viability as well as the real-world applications of your project. Once you are sure that it is plausible your project solves a real-world challenge, then it is essential to write down the details of the project in a whitepaper.
The Whitepaper: A whitepaper is a document that is intended to give potential investors an in-depth introduction to your project. The document details the technological aspects in a thorough manner so as to extol the advantages of your project. Moreover, the paper should outline how you aim to implement the technology to bring about substantial levels of market adoption.
A whitepaper is going to be the first impression you make on your potential investors. Therefore, it is important to ensure that the document is clear, concise, and well thought out as this is likely to have a bearing on the amount you raise during the ICO.
A Strong Online Presence: Secondly, before a project goes into the ICO stage, it should have an online presence through a good website, social media, and other communication channels. Creating a good website for your project communicates a certain level of attention to detail and professionalism that people are looking for before they put their money into a project.
Moreover, the website is another way for people to familiarize themselves with aspects of the project that are not available on the whitepaper such as important announcements and dates as well as the projects’ team members. Social media pages are also essential as they provide another layer of credibility to the project. They are also a way to disseminate any real time advancements relevant to the project.
Appropriate Communication Channels: Communication channels are important because they help grow a vibrant community that supports your project. Community participation can be an indicator of the success of an ICO. Therefore, it is important to create channels on Telegram or Slack where members of the community can interact with the project’s team as well as with each other.
The Token: Before launching the ICO, you need to create the token you will use during the crowdsale. Whether you decide to use an ERC20 token or a cryptographic token that is native to your own blockchain, you will need to develop the token adequately. Depending on your technical knowledge, you may need to hire a developer to handle the technical aspects for you.
Third-party Security Audits: Moreover, it is imperative to conduct third-party security audits on all smart contracts in order to ensure there are no bugs that can be manipulated by hackers to undermine your project. Unresolved bugs can lead to a hack which results in the loss of investor funds and, most probably, also a complete loss of credibility. Furthermore, any bugs in your software can lead to a malfunction in your project, which can greatly harm your ICO.
Regulatory Compliance: Lastly, to avoid any regulatory hurdles, it is important to have the right legal backing that allows you to navigate the token sale in a manner that ensures you are staying within the confines of the law. This also helps the project develop certain rules of engagement with the investor to allow for clear communication and to minimize the risk of any future litigation against the project.
While the things outlined above are the most necessary for a project to have before it launches an ICO, some projects may choose to include other things that can lead to a substantial increase in their budget.
How Much Does It All Cost?
To get first-hand information about the true cost of launching an ICO, Bitcoin Market Journal spoke to Bernhard Blaha, co-founder & COO at Herocoin, an Austrian online gaming startup that raised over $2 million during its ICO to develop a decentralized blockchain-powered e-sports betting platform.
It is possible to create a whitepaper for yourself at no cost. However, to ensure utmost professionalism, most projects prefer to hire someone to fine tune their whitepaper. Blaha told BMJ that the cost of a whitepaper will come to around $5,000, including internal contribution.
Startups that entirely outsource the creation of their whitepaper to a reputable writer, however, can expect to pay up to $15,000.
While it may be cheaper and easier to create a website for your project using templates, it is best to have one developed from scratch that provides a strong level of security to prevent hacks. The development of a high-quality, secure website will costs from $10,000 to $20,000, according to Blaha.
Creating social media pages as well as communication channels can easily be done by the team at no cost. However, to get the word out about the ICO, it is extremely important to engage in ample advertising and marketing. You may need to hire content writers as well as pay for ads on social media sites like Facebook and Reddit.
Moreover, due to the fact that the ICO space is very crowded now, it may be necessary to include search engine optimization for your website in your project. This can help you grow investor interest in your project organically.
Blaha said that an ICO’s marketing budget should amount to around 10 to 20 percent of the funding target. So, for startups looking to raise $5 million, spending $500,000 to $1,000,000 would be ballpark figures to cover marketing expenses.
Additionally, blockchain developers will charge based on the time they have spent on your project. Experienced developers are likely to charge upwards of $100 an hour. According to Blaha, blockchain developers will cost between $5,000 to $15,000 depending on their experience and the work they will be required to do.
A security audit conducted by a third-party that ensures that your smart contract is bug-free can cost anything between $10,000 to $50,000 depending on the complexity of the audit.
Legal fees that cover legal advice and any regulatory filings amount to around $50,000 according to Blaha. Although today, legal costs should be less he told BMJ.
Including salaries for the team as well as other miscellaneous costs, launching a successful ICO launch will cost $250,000 on the low end and up to $1,000,000 on the high end. If you add exchange listing costs post-ICO or invest heavily into marketing, though, the total amount could end up higher.
“The true costs of an ICO varies according to your funding target and your pre-ICO budget but to launch a successful ICO that raises an amount in the millions – all in all – the cost will be around $250,000 – $400,000,” Blaha concluded.
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