To better understand Pre-ICO sale, we first need to understand ICO and the history of ICOs.
In 2013, Ethereum enabled individuals and startups to utilize blockchain without bootstrapping. Ethereum has its own programming language, which means anyone can write a software with it that can solve any reasonable computational problem.
With Ethereum, people can write their own smart contracts. A smart contract consists of financial terms and conditions between the two involved parties to verify transactions in a decentralized way. This means anyone can create any kind of financial and legal contracts without having to pay any legal fees.
Initial Coin Offering (ICO)
An ICO is an event where a company sells tokens that are generated and sold to investors in the form of smart contracts. It’s a type of crowdfunding where investors purchase tokens, a unit of value which is issued within the blockchain system, and the capital gained from tokens sales are used to fund the company’s project.
Issuance of tokens ensure investors their fair share of profit or transaction fee of that particular cryptocurrency circulating in the blockchain system. A token can be used to access specific products or services that the company will provide in the future. For example, Sia is a cloud storage platform utilizing blockchain technology, and Siacoins will be used to buy or rent storage. Another great example, Group Project will provide product authentication to verify if a product is real our counterfeit, and consumers will use GRUP tokens in exchange to authenticate a product.
Anyone with a great landing page and a whitepaper explaining the technology can make millions of dollars during an ICO. Nonprofits organizations, open source developments, scientific research, and many more things that provide real value to the world can raise good amount of money to carry out the project.
Pre-ICO, in the simplest of explanation is when a company sells their tokens at a cheaper price before the targeted ICO. Investors get 20-50% bonuses or discounts on the tokens.
Companies go for Pre-ICO sales to cover the cost of an ICO and to raise early funds to invest in their technology. Pre-ICO sales are mostly for accredited investors, venture capitalists and hedge funds but can also include individual investors depending on the requirements. Another reason for Pre-ICO sales is that companies want to test the waters before launching the product. It is a good indication for both the companies and investors to gauge the interest of the product or service.
Some of the features of good Pre-ICO sale are;
Soft/Hard Cap: Hard cap is the maximum number of capital that needs to be raised. Once a project reaches its hard cap through a Pre-ICO or ICO, projects will stop accepting funds and will return any funds back to the investor above the hard cap. Most hard caps are set really high and are unlikely to be reached.
The soft cap is the minimum capital that needs to be reached during a Pre-ICO/ICO for the event to be considered successful. It is the minimal amount of funds needed and aimed at by the project to proceed as planned.
The soft cap is not guaranteed to be reached, and if it isn’t reached then most projects should shut down and return all the raised capital to the investors. Not all do this, and some proceed with the project regardless of the capital raised. Investors should be clear how the funds will be used if the soft cap is not reached before investing. For investors it is important that the soft and the hard cap are based on numbers and real plans.
A Strong & Detailed Whitepaper: A whitepaper is a public “business plan & blueprint” for the proposed technological solution to a problem. If there is no whitepaper or if the whitepaper is poorly written, there is a good chance that the project will fail or worse, steal your money.
Every whitepaper should have the following:
- Solution & Product
- Token Implementation (how the token works with the product, economics and technical)
- Token Deployment & Plan
Transparency: If a company is transparent, naturally, the investors tend to trust it more. Communication of how much the company has raised in the Pre-ICO sale and the amount the company needs to further develop the product is very integral. And communication with the company through multiple social media channels should be a requirement.
Discount Structure: Discount structure should be in place making sure that the discount amount is neither too high that it loses its essence nor is it too low that investors become unresponsive.
The downside of Pre-ICO is that there is no surety that the product will succeed and make a name in the market. The only information investor has is what the company is revealing and the creator’s reputation.
How to find Pre-ICO sales and how to invest in them?
Today, we live in a world where every week, new technologies are coming up and most of these technologies are undervalued. To participate in Pre-ICOs, one needs to add value to the company and have them pay in crypto. Companies need people who can help them make more money. This help can be in terms of money and in terms of services that are essential to the company.
To find these Pre-ICO sales, there are several websites that keep a schedule of upcoming ICOs and the ICOs that have been done in the past. These websites include; ICO.Alert, Token Market, Top ICO list, Coin Schedule, ICO Hotlist, ICOwatchlist, and many more.
On each of these websites, links to crowd sales and Presale discounts are given. Investors can invest by registering on the websites and paying in US dollars, bitcoin, ether and other accepted currencies.
investment in Pre-ICO sales seems complicated, but once you’re aware of the market and its dynamics, it becomes easier for you to make well informed decisions. Now that you’re cognizant about the importance of Pre-ICO sales and the methodology of investing in it, you’re primed to capitalize it. Feel free to share your experiences or any Pre-ICOs below!
References:blockchain ico pre-ico whitepaper