Munchee Inc., on October 31, 2017, launched an Initial Coin Offering with the goal to raise $15 million. This was done to improve its blockchain-based iPhone app used to review restaurant meals or to post pictures. The U.S. Securities and Exchange Commission contacted Munchee on the next day, not for the token sale but to stop the ICO. In response to this action, Munchee stopped selling its digital tokens aka MUN tokens and returned a combined of $60,000 offering to investors. From then on, Munchee has faced cease-and-desist proceedings instituted by the SEC.
Why Did The SEC Shut Down The ICO?
When you launch an ICO, you need to follow a set of guidelines issued by the SEC to make it fully compliant and legal, which, however, Munchee did not follow.
Determining whether your ICO meets security or not is important. If you are planning to launch an ICO, make sure you walk through- A Securities Law Framework for Blockchain Tokens. It guides you through the steps you need to follow for launching an ICO. Moreover, it has a scorecard for you to calculate to what extent your ICO follows the security protocols.
Steps To A Compliant ICO
No more the launch of ICOs just needs a short white paper, as the legal scrutiny has grown manifold, with the SEC laying the first criminal charges along with penalizing ones who don’t abide by the rules of the SEC. This necessitates the need to follow ICO measures to fully compliant and to maximize the success of your venture. You don’t need to implement these steps in exact order as various aspects of business development and product development can be done simultaneously.
An Informative Whitepaper
Of course, you have an idea to describe in your whitepaper. What is it? How will it work? For how long would it be beneficial? You need to open up in your whitepaper- the more you explain, the better will people understand you.
In concerned with your crypto/blockchain project, technical considerations such as systems architecture and user interaction are important to take care of. Make sure you have a team section to describe the experts who are responsible for the operation. Don’t consider it a technical document as it’s intended to raise funds for the process. The way you represent your team plays an important role in decision making of investors.
A Roadmap That Goes To The Minds Of Investors
What is your strategy to move further? Have you set timelines for the various tasks to accomplish? What milestones do you have? Creating a measurable plan of action and its precise representation would guide investors about the potential of your project. Going step by step to explain important developments, such as Alpha versions, beta versions, wallet development, launch, additions of new features, would work better.
Apart from laying the development schedule, a roadmap also describes the planned use of funds. Investors won’t invest in for open-ended objectives; therefore, a roadmap with predefined objectives is vital to get into the minds of investors. Plan well, keep your targets reasonable and generically target your investors to raise funds.
Similar to other business ventures, the more you will plan, the higher will be the chances of raising funds. This will heighten the valuation while improving the odds of successfully financing your project.
Moreover, you can develop code on a public blockchain so that other developers check your code and work out on your idea. Whatever the amount you raise, having a community of supporters — developers, investors, users, customers at disposal increases the chances of success. Raise the number of early-adopters by grabbing the interest of investors with a great strategy.
Determine A Token Structure
Tokenomics refers to the structure of your offering, is significantly important for ICO success. What will be your total supply or a number of tokens? What will be the circulating supply or the number of tokens you are going to release? What will be their rate? How many of them will you keep for your dev team?
A fair, balanced and reasonable token structure correctly aligns all parties. A token structure runs parallel to pricing that further includes your plans to raise funds along with distribution processes.
Complete Your Paperwork
Organized paperwork is important for every business. This becomes a requirement when launching an ICO. From business registration and audited financial statements to other accounting or legal documentation, everything needs vetting from professionals.
Early communication with the concerned regulators in the process tackles potential issues on time. Furthermore, ensure your regulator sign off on your project before the launching of the ICO.
Yes, you are about to complete. All your ducks, such as legal, technical, and business ducks are in a row. So what is left? Promotion of your ICO! This might be your favorite part, but beware, notifying and promoting your ICO in a wrong way can send you behind bars. Trying to promote an ICO as an investment or anything that gives the implication is not legal in the eyes of the SEC. Moreover, you can not use the term ICO, as people might compare it or even consider it an IPO.
From public statements and press releases to other promotional tactics, keep your language subtle or factual rather than promotional and keep going smoothly. Making your ICO fully compliant might sound tough to you in the beginning, but achieving compliance can give you an important advantage over other ICOs. Moreover, it will relieve you from unnecessary botheration as you will satisfy regulators and investors will pay heed to your legitimate offering.
Congratulations, you have successfully reached the last step! It’s your time to launch, but before you do it, you need to follow Anti-Money Laundering (AML) and walk through your Customer (KYC) laws. These laws would ensure investors that their money won’t be tainted and associated with criminality.
This post sheds light on the compliance of the ICO. Follow the ideas mentioned above and get on track to a successful ICO launch with lots of investors in your satchel.
Click here for “A Securities Law Framework for Blockchain Tokens”