Blockchain funding structure is evolving at a rapid rate. While companies are by no means obligated to follow a specific protocol or structure for their ICO beyond obvious regulatory compliance requirements like document authentication, ID verification, KYC, and AML, most have found it beneficial to follow similar a pattern.
This pattern currently looks like Private Sale, then Pre-Sale, then Public ICO Sale. Most cryptocurrency enthusiasts have a pretty good idea of how the main ICO works, having read about it extensively or even participated in the process. But what are the Private Sale and Pre-Sale events? How are they advertised, and who participates in these processes?
Both Private Sale and Pre-Sale are very important. In fact, 85% of all ICO fundraising so far this year has come from Private Sales and Pre-Sales. Both methods offer some similarities.
- Both happen prior to the public main ICO sale.
- Both Private and Pre-Sale funding has emerged as a viable way to raise the majority of funds needed to fund an ICO, practically negating the crowdsale portion of the ICO, which used to be the main event
- Both can be used to accrue funds needed prior to the main ICO if a public crowdfunding event is expected to be the main fundraising avenue
- Fundraising targets are often lower than for the main sale
- Both offer discounts or bonuses for investors and sometimes expect support by way of cryptocurrency industry networking and platform-based publicity in return
- Separate smart contracts are used for pre-ICO events as opposed to the main sale
ICO Private Sale
ICO Private Sales are campaigns run by founders and leadership/management teams. They are specifically targeted toward angel investors, crypto funds, private ICO pools, and individual wealthy cryptocurrency investors. It is a capital raising event for specific investors, who have the opportunity to communicate extensively with the ICO founder, CEO, and leadership team, and an advisory team.
The Private Sale is typically announced to these investors through a legal document called the ICO Private Placement Memorandum which explains legalities such as the structure, management, objectives, risks, and investment protocols set up by the company. Because ICO Private Placement doesn’t have a lot of regulatory requirements or standards, it is an ideal way to not only secure private ICO funding, but also to attract the attention of investors who have considerable clout in the cryptocurrency and blockchain space, and consider their support of the project part of their investment into the ICO.
This method, with both parties recognizing the value of this kind of support and expert level advice advertising, has become very popular and recognized as highly beneficial.
The ICO Pre-Sale typically operates off a separate smart contract than the Private Sale. It too is offered to a limited number of investors and typically is capped at a certain dollar amount, with a minimum investment requirement. It can also be used as a way to test the waters; essentially to predict the outcome of an ICO main sale.
There are risks to the Pre-ICO that don’t exist during Private Sale. Specifically, because tokens are offered at a discounted rate, but investors don’t hold the industry clout and personal tie to the business that they usually do during Private Sale, there is the possibility that they will sell during the main launch at current market rates, making a profit, but decreasing the overall profitability of the main launch. Because of this risk, it is prudent to carefully vet Pre-Sale investors.
With both of these options, there is endless opportunity to raise private blockchain money for businesses who wish to take this route.