6 Key Success Factors For ICOs — What You Should Know Before Launching Your ICO
The token must have true large scale potential
Most of the crypto investors are looking for long-term investments, that they can HODL. Picking the right coin or token is not easy because the crypto market is crowded and many new ICOs are coming up. In the crypto space, we see that many tokens are trying to solve very similar issues, such as anonymity or security, not to mention the several platform tokens. This market is very competitive, which investors are aware of so they are looking for tokens that are capable of adapting and keeping up with the competition.
We see that Ethereum is currently facing a serious scaling issue, a challenge which other coins and tokens should expect as well, as they scale with success. Third generation tokens have to figure out a way to solve the scaling issue. Essentially, when every transaction must update the distributed blockchain everywhere in the world simultaneously, performance suffers. This problem will be solved over time.
I meet some ICO CEOs that have a token concept which fits their business but that is inherently not appealing as an ICO investment because the audience that their business faces or touches is far too small to provide sufficient scale for a genuine network effect. It is necessary in almost all cases that the token appears likely to rapidly expand in use and become a broadly adopted solution.
It is key to create a token concept that delivers on this, and that the potential can easily be seen in the whitepaper. With these “small universe” companies I suggest that the CEO either create ways in which to make their token concept have a very broad use case and appeal, or that they make it into a genuine utility token instead of raising capital using it, or to not do an ICO.
Must attract the actual ICO investors
Most of the real crypto investors (about 90%) are young techies that made a fortune on Bitcoin, and they are looking for revolutionary blockchain opportunities — and are less concerned about pure financial returns or share/stock ownership. These people understand the technologies behind the projects and they only invest if they see the potential for scale and significant positive change — disruption to the old established players’ matters a great deal to them.
Another important thing is that they are idealists, they truly believe in the concept of decentralization, and they are very critical of the current banking and monetary system. As an example, for a long time the general opinion of Ripple (XRP) was very bad because of its centralized nature and intention to cooperate with the old school banks. Innovative disruption that leverages the blockchain is a highly desirable characteristic.
In order to attract serious investors, the whitepaper has to be genuine and well written. Investors know the different tokens and projects and they can tell if a whitepaper is real or superficial.
The token must attract a large audience to use it or make money with it
Token enthusiasts have learned that they can make serious money on ICOs when they identify a truly strong blockchain model. And they are open to new concepts for extra income. Tokens that provide passive income are getting more common, although after the Bitconnect scam people are more careful and they think twice before they lock in their money.
Be in a field that is interesting and solves real problems which leverage the blockchain
Crypto investors are selective. Since there are many lightweight ICOs which do not really require a blockchain solution to deliver their functionality, they have learned how the pick out the diamonds in the rough. If a token gives a solution to a real problem, it is more likely that investors are going to support it, because there are many people who are looking for great opportunities to disrupt the status quo using blockchain technology.
The team must be superb
The team is obviously one of the most important factors in crypto because an investor looks at two main things before investing; The whitepaper and the team behind the project. Since most of the ICOs don’t have much more than a concept, investors look for a credible team. If an ICO company can hire people that are well known and respected in the blockchain field or in the area of the ICO company’s business, this will help build credibility. A good example is Cardano(ADA) who has been keeping its place in the top 10 cryptos for a long time, without a working product. It is only possible because their team is so good that everyone believes in them in the long term. Make sure that the team is easily explored to show evidence that they are real and accomplished. Don’t just make the claim, show proof in a transparent manner
Have the founders and key executives vest their token ownership over three or four years. This ensures that they are likely to stay engaged as is necessary to deliver on the promise.
Provide voting authority to token owners to give them some say in how the business is managed and directed. Just don’t take this too far!
For US ICOs make sure to do QA testing of the smart contract and token software to ensure that they deliver on the SEC-required aftermarket trading restrictions that follow from the type of offering that is being made (Reg D, Reg S, Reg A+ or Reg CF (and later, IPO)). It’s not sufficient to “try”, it is necessary to deliver.
Originally published at www.manhattanstreetcapital.com.
INVESTOR RISKS AND EDUCATION GUIDE
Investor Risks and Education Guide
Each investor is advised to consult legal, tax, investment or other professional before investing, and carefully review all the disclosures and documents provided as part of any offering materials. If in doubt, do not invest.
The purpose of this guide is to provide information to potential investors about the risks involved in buying securities in startup and mid-stage private and public companies. Please review the important information below before you begin to register on Manhattan Street Capital and before you make any investment commitment to companies on the MSC website.
About Manhattan Street Capital
FundAthena, Inc., a Delaware corporation doing business as Manhattan Street Capital, brings together prospective investors and companies seeking growth capital. On this website platform companies seeking growth equity can post information about their business, fundraising plans and value proposition and solicit feedback and test interest from prospective investors and industry advisers that they can use to refine and improve their fundraising pitches and presentations before filing their offering documentation with the federal Securities and Exchange Commission (“SEC”) under Regulation A+ (“Reg A+”), which allows investors of all financial backgrounds and investment experience to participate in capital market investments. MSC also helps companies make their Reg D 506C offerings which are restricted to accredited investors and Reg S offerings which are restricted to non-US investors.
Manhattan Street Capital provides the platform that enables businesses seeking growth advice and capital, individuals, and firms seeking investment opportunities and advisors seeking to support growing companies to gather in one place to foster business and financial opportunity. Companies seeking feedback can post information about their business and fundraising goals on the Platform for others to view and assess and such posting does not mean that a specific company has offered or agreed to complete an offering.
Manhattan Street Capital is not a broker-dealer or placement agent. At no time does Manhattan Street Capital offer, broker, advise, purchase, sell or otherwise transact in securities regulated by the SEC or federal or state law. Manhattan Street Capital does not accept, hold or transfer cash or securities. Manhattan Street Capital does not guarantee that a Company seeking investment will achieve any level of fundraising or that any proposed offering will qualify under applicable federal and state securities laws.
Manhattan Street Capital is not a personal financial advisor. Manhattan Street Capital, whether through the Platform or otherwise, does not provide personal financial advice, loans or credit, banking, consumer credit ratings, credit decisions, financial products, brokerage accounts, insurance, tax advice, legal advice, or financial or legal services of any kind. Even if featured on the Platform, unless expressly stated otherwise, Manhattan Street Capital does not provide endorsement to or for any advisor/company seeking capital or investment opportunity.
Manhattan Street Capital does not guarantee any result to anyone. All users of the Platform are responsible for making their own decisions to use the Platform and for any actions taken on the Platform, including without limitation registering, posting information about their Company and any proposed financing, reserving an investment, making an investment or otherwise.
Investment Considerations and Risks
Each investor is advised to consult legal, tax, investment or other professional before investing, and carefully review all the disclosures and documents provided as part of any offering materials.
Prior to registering on Manhattan Street Capital and before making an investment, you are advised to consider the risks of investing in crowdfunded securities offerings and determine whether such an investment is appropriate for you. You could lose your whole investment.
Manhattan Street Capital and its employees are prohibited from offering advice about any offering posted on Manhattan Street Capital and from recommending any investment. This means the decision to invest must be based solely on your own individual consideration and analysis of the risks involved in a particular investment opportunity posted on Manhattan Street Capital.
There are risks that you must consider when making an investment in the company on Manhattan Street Capital. Investing in private/early stage companies is very risky, speculative, and investments should not be made by anyone who cannot afford to lose their entire investment. Carefully consider the risks associated with the type of investment, security, and business before making any investment decision. Potential investors agree and acknowledge that they are responsible for conducting their own legal, accounting, and other due diligence reviews of the investment opportunities posted on Manhattan Street Capital.
Principal risk: Investing in private companies and startups will put the entire amount of your investment at risk. There are many situations in which the company may fail completely or you may not be able to sell the stock that you own in the company. In these situations, you may lose the entire amount of your investment. You should not invest any funds unless you are able to bear the entire loss of the investment.
Returns risk: The amount of return on investment, if any, is highly variable and is not guaranteed. Some private companies and startups may be successful and generate significant returns, but many will not be successful and will only generate small returns, if any at all. Any returns that you may receive will be variable in amount, frequency, and timing. You should not invest any funds in which you require a regular, predictable and/or stable return.
Returns delay: Any returns may take several or many years to materialize. Most companies take five to seven years to generate any investment return if any at all. It may also take many years before you will know if an investment will generate any return. You should not invest any funds in which you require a return within a certain timeframe.
Liquidity risk: It may be difficult to sell your securities. Startup investments are privately held companies and are not traded on a public stock exchange. Also, there is currently no readily available secondary market for private buyers to purchase your securities. Furthermore, there may be restrictions on the resale of the securities you purchase and your ability to transfer. You should not invest any funds in which you require the ability to withdraw, cash-out, or liquidate within a certain period of time.
Instrument risk: You may be investing in preferred equity, common equity, or convertible notes. These securities instruments all have different inherent risks caused by their structure. You should take the time to understand the nature of the securities instrument that you are investing in.
Dilution: Startups and early-stage companies may need to raise additional capital in the future. When these new investors make their investment into the company they may receive newly issued securities. These new securities will dilute the percentage ownership that you have in the business.
Minority stake: As a smaller shareholder in the business you may have less voting rights or ability to influence the direction of the company than larger investors. In some cases, this may mean that your securities are treated less preferentially than larger security holders.
Valuation risk: Unlike publicly traded companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult to assess. The issuer will set the share price for your investment and you may risk overpaying for your investment. The price you pay for your investment may have a material impact on your eventual return if any at all.
Failure risk: Investments in startups and private companies are speculative and these companies often fail. Unlike an investment in a mature business where there is a track record of revenue and income, the success of early-stage companies often relies on the development of a new product or service that may or may not find a market. You should be able to afford and be prepared to lose your entire investment.
Revenue risk: Many startup, private and public companies are at an early phase, and may be just beginning to implement their business plan. There can be no assurance that it will ever operate profitably. The likelihood of achieving profitability should be considered in light of the problems, expenses, difficulties, complications, and delays usually encountered by companies in their early stages of development. A company may not be successful in attaining the objectives necessary for it to overcome these risks and uncertainties.
Funding risk: A company may require funds in excess of its existing cash resources to fund operating expenses, develop new products, expand its marketing capabilities, and finance general and administrative activities. Due to market conditions at the time the company needs additional funding, it is possible that the company will be unable to obtain additional funding when it needs it, or the terms of any available funding may be unfavorable. If the company is unable to obtain additional funding, it may not be able to repay debts when they are due or the new funding may excessively dilute existing investors. If the company is unable to obtain additional funding as and when needed, it could be forced to delay its development, marketing and expansion efforts and, if it continues to experience losses, potentially cease operations.
Disclosure risks: Companies that at an early stage and may only be able to provide limited information about their business plan and operations because they do not have fully developed operations or long trading history. Startups and private companies only obligated to provide limited information regarding its business and financial affairs to investors.
Personnel risks: An investment in a private company is also an investment in the management of the company. Being able to execute on the business plan is often an important factor in whether the business is viable and successful. You should be aware that a portion of your investment may fund the compensation of the company’s employees, including its management. You should carefully review any disclosure regarding the issuer company’s use of proceeds. You should also carefully consider the experience and expertise of the management team.
Fraud risks: It is possible that certain people involved in the business may commit fraud or mislead investors. If fraud or misleading conduct occurs, then your total investment may be lost. You should carefully review any disclosures regarding the company’s management team and make your own assessment of the likelihood of any potential fraud.
Lack of professional guidance: Many successful companies partially attribute their early success to the guidance of professional investors (e.g., angel investors and venture capital firms). These investors often play an important role through their resources, contacts, and experience in assisting early-stage companies in executing their business plans. Private companies and startups primarily financed by smaller investors may not have the benefit of such professional investors. You should consider the existing professional investors in the business and whether or not they or any other professional investors are participating in the current round.
Growth risk: For an early stage company or startup to succeed, it will need to expand significantly. There can be no assurance that it will achieve this expansion. Expansion may place a significant strain on the company’s management, operational and financial resources. To manage growth, the company in their early stages of development will be required to implement operational and financial systems, procedures and controls. It also will be required to expand its finance, administrative and operations staff. There can be no assurance that the company’s current and planned personnel, systems, procedures, and controls will be adequate to support its future operations. The early stage company’s failure to manage growth effectively could have a material adverse effect on its business, results of operations, and financial condition.
Competition risk: The company in their early stages of development may face competition from other companies, some of which might have received more funding than the company you invested in has. One or more of the company’s competitors could offer services similar to those offered by the company at significantly lower prices, which would cause downward pressure on the prices the company would be able to charge for its services. If the company is not able to charge the prices it anticipates charging for its services, there may be a material adverse effect on the company’s results of operations and financial condition.
Market demand risk: While the private company or startup believes that there will be customer demand for its products, there is no assurance that there will be broad market acceptance of the company’s offerings. There also may not be broad market acceptance of the company’s offerings if its competitors offer products which are preferred by prospective customers. In such event, there may be a material adverse effect on the company’s results of operations and financial condition, and the business may not be able to achieve its goals.
Control risks: Because the private company or startup’s founders, directors, and executive officers may be among the company’s largest stockholders, they can exert significant control over the company’s business and affairs and have actual or potential interests that may depart from yours. The company’s founders, directors, and executive officers may own or control a significant percentage of the business. In addition to their board seats, such persons will have significant influence over corporate actions requiring stockholder approval, irrespective of how the company’s other stockholders, including you, may vote. Such persons’ ownership may also discourage a potential acquirer from making an offer to acquire the company, which in turn could reduce the company’s stock price or prevent you from realizing a premium on your investment.
The risks highlighted above are non-exhaustive. Investors must carefully review each issuer company’s offering materials for a more complete set of risk factors specific to the investment. You should only invest an amount of money you can afford to lose without impacting your lifestyle.
Types of offerings on Manhattan Street Capital
Direct Listings, Regulation A+, Regulation D, Regulation S, and STOs that utilize the same SEC Exemptions. These rule systems significantly differ from each other, so always make sure to read the offering documents before you make an investment.
Types of Securities Offered
The most common forms of securities an issuer can offer are equity or debt. The securities that the issuer companies offer on Manhattan Street Capital include the following:
Common Stock: Conveys a portion of the ownership interest in the company to the holder of the security. Stockholders are usually entitled to receive dividends when and if declared, vote on corporate matters, and receive information about the company, including financial statements. This is the riskiest type of equity security since common stock is last in line to be paid if a company fails. You should read our discussion of the risks of early-stage investing here, and pay special attention to the fact that your investment will only make money if the company’s business succeeds. Common Stock is a long-term investment.
Preferred Stock: Stock that has priority over common stock as to dividend payments and/or the distribution of the assets of the company. Preferred stock can have the characteristics of either common stock or debt securities. While preferred stock gets paid ahead of common stock, it will still only be repaid on liquidation if there is money left over after the company’s debts are paid. In certain circumstances (such as an initial public offering or a corporate takeover) the preferred stock might be convertible into common stock (the riskiest class of equity). You should review the terms of the preferred stock to know when that might happen.
Debt: Securities in which the seller must repay the investor’s original investment amount at maturity plus interest. Debt securities are essentially loans to the company and the major risk they bear is that the company does not repay them, in which case they are likely to become worthless.
Convertible Note: This form of investment is popular with technology startups because it allows investors to initially lend money to the company and later receive shares if new professional investors decide to invest. The sort of convertible note that is most often offered on Manhattan Street Capital may limit the circumstances in which any part of the loan is repaid, and the note may only convert when specified events (such as a preferred stock offering of a specific amount) happens in the future. You will not know how much your investment is “worth” until that time, which may never happen. You should treat this sort of convertible note as having the same risks as common stock.
Title IV (Regulation A+)
Regulation A+ is the primary SEC exemption that Manhattan Street Capital supports. Please make sure to understand this rule system before you make any investment commitment.
Regulation A+ allows startups and later stage companies to use equity crowdfunding platforms to raise as much as $50M* from both accredited and non-accredited investors. Regulation A+ broken up into two tiers, Tier 1 and Tier 2. Tier 1 allows companies to raise up to $20M while Tier 2 allows them to raise up to $50M.
Tier 1 — Raise up to $20M
- Anyone can invest worldwide
- The company can publicly advertise
- Financials required
- Must satisfy Blue Sky laws in each US state that investors live in
- No limit on investment amount by main street investors
Tier 2 — Raise up to $50M
- Anyone can invest, worldwide
- The company can publicly advertise
- No state registration required
- Requires Audited Financials
- Non-accredited investors are limited to 10% of income/net worth per year
Please note that the regulations of your country may restrict you from investing via Reg A+ offerings. As an investor, you must check the regulations that apply to you, in your country.
- For Tier 1, the investor has no restrictions on the amount they invest.
- For Tier 2, non-accredited investors have caps on how much they can invest. They can invest a maximum of 10% of their annual income/net worth per year, depending on which is greater.
Regulation D 506C:
Only accredited investors are allowed to participate in Reg D offerings. In the investing process, you have to prove your accredited investor status. Note that there might be restrictions on reselling your Reg D shares.
Definition of an Accredited Investor:
- Have had an annual income of $200,000 if filing individually or $300,000 if filing jointly for each of the two most recent years, and a reasonable expectation to maintain that income for the following year, or
- Have a net worth of $1,000,000, not including his or her primary residence.
- Is a Trust or Entity with assets of $5,000,000 or
- Is a Trust or Entity solely owned by accredited investors
Only non-US investors are allowed to invest.
Definition of a US-Person:
- Any natural person resident in the United States;
- Any partnership or corporation organized or incorporated under the laws of the United States;
- Any estate of which any executor or administrator is a U.S. person;
- Any trust of which any trustee is a U.S. person;
- Any agency or branch of a foreign entity located in the United States;
- Any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;
- Any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and
- Any partnership or corporation if:
- Organized or incorporated under the laws of any foreign jurisdiction; and
- Formed by a U.S. person principally for the purpose of investing in securities not registered under the Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in §230.501(a)) who are not natural persons, estates or trusts.
Calculating Net Worth
Calculating net worth involves adding up all your assets and subtracting all your liabilities. The resulting sum is your net worth. (The value of your primary residence is not included in your net worth calculation.)
If you make an investment in error, contact the company that you made your investment in immediately to request them to cancel your investment by email using the email and their information published on their offering page.
The securities offered on Manhattan Street Capital are only suitable for potential investors who are familiar with and willing to accept the risk of loss associated with high risk and illiquid private investments. It may be difficult or impossible to sell your securities.
Most of the issuer companies are privately held and their shares are not traded on a public stock exchange. Even if they are traded on a public stock exchange, there can be no guarantees of liquidity or favorable prices for the securities you might buy. Also, there may be no readily available secondary market for private buyers to purchase your securities. Furthermore, there may be restrictions on the resale of the securities you purchase and your ability to transfer them. You should not invest any funds in which you require the ability to withdraw, cash-out, or liquidate within a certain period of time.
Rod Turner is the founder and CEO of Manhattan Street Capital, the #1 Growth Capital marketplace for mature startups and mid-sized companies to raise capital using Regulation A+. Turner has played a key role in building successful companies including Symantec/Norton (SYMC), Ashton Tate, MicroPort, Knowledge Adventure and more. He is an experienced investor who has built a Venture Capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris (AMRS), Ask Jeeves and eASIC.
Manhattan Street Capital, 5694 Mission Center Rd, Suite 602–468, San Diego, CA 92108