The majority of initial coin offerings that are being launched today are preceded by a so-called pre-sale. In this guide, you will discover what pre-sales are, what best practices for pre-sales are, and why investors should take a close look at them.
An ICO pre-sale (or pre-ICO) is a tokensale event that startups offer before the main ICO crowdsale.
A small percentage of the total available tokens will go on sale and the idea is to give interested investors an opportunity to buy tokens before the official ICO date.
It can either be to a group of selected, private investors (by invitation for example) or open to the general public through the tokensale webpage.
ICO pre-sales are usually targeted at larger investors such as hedge funds, venture capital firms, and accredited investors but can also include private investors depending on how the token sale is structured. The main idea behind a pre-sale is to provide a steep discount – usually ranging from 20 to 50 percent – to early backers of the project to entice investors to give the project an early funding success, which can then be leveraged during the official initial coin offering.
Momentum tends to build for projects that manage to raise substantial funds early on as this shows investors that there is interest in the project, which could also mean that its digital token will perform well once the token sale is completed.
At times, pre-sales are also used to raise funds that can then be used to cover the costs of the official token sale. These costs can include strategic recruitment, smart contract audit, advertising, and public relations as well as travel expenses to attend conferences and meet with potential investors.
What is the purpose of an ICO-presale?
There are a number of reasons a startup will conduct a pre-sale.
It could be to test the waters before the main event. This would give management an indication of the level of interest in the project and whether or not they need to intensify their marketing and promotional efforts to reach the funding goal for the official ICO.
An ICO-presale can also be seen as sort of a beta launch. Because it’s smaller and therefore more manageable and controllable, if something does go wrong, it’s much easier to fix with fewer people affected. This way they can smooth out the kinks before the main event.
A recent trend in pre-sales, which seems to be working, is to get private VC investments at a bigger discount behind the project at an early stage.
What are the benefits of an ICO pre-sale?
The biggest advantage for investors will often be the opportunity to buy tokens at a discount. This discount can be as much as 50%.
Tokens are sold for cheaper because the fundraising target will typically be lower than for the official crowdsale.
Many ICO’s are heavily oversubscribed, so taking part in a pre-sale will also ensure you are allocated with the amount of tokens you wish to purchase.
Projects can use the funds raised from the pre-sale to ramp up investor interest for the official ICO through additional marketing and meetups. It will also cover the expenses that were incurred in the run-up to the pre-sale.
A pre-sale will further ensure that the project has already gained some traction by the time the official ICO rolls by. If potential investors see that the project has already enjoyed some backing, it will instill confidence and make them more likely to take part in the tokensale.
Pre-Sale Best Practices
The goal of a pre-sale is to bring large investors on board by providing a discount on the token in order to start an ICO campaign off on the right foot. However, to conduct a successful pre-sale, it is no longer enough simply to have a great idea for a decentralized platform and to provide a discount on its digital token.
Today, there are dozens of initial coin offerings being launched each week, which means there are a lot of startups vying for the attention of major blockchain investors. Hence, it is more important than ever to follow best practices for both the ICO and the ICO pre-sale.
The main box every token sale campaign needs to tick according to David Siu, CEO of blockchain incubator and investment firm Novatron Capital, include:
A finished product that investors can try out
A capable team that has the ability to execute on its mission
Strong cybersecurity and corporate governance measures
Ensuring regulatory and legal compliance in all jurisdiction where the ICO is being marketed
24/7 monitoring of all communication channels to prevent and detect potentially fraudulent activities
A professional marketing campaign that includes bounty programs and targeted digital marketing
For a pre-sale to be successful, all the above-mentioned boxes must be ticked. On top of that, startups also require a budget to pay for pre-sale marketing expenses, the development of a secure website, as well as the costs of meeting up with potential investors at conferences or their offices.
Furthermore, startups need to ensure that they can reach out to all major blockchain investors such as hedge funds and venture capital funds that focus on digital currencies. Bringing on board the likes of the Digital Currency Group, Blockchain Capital, or Draper Associates, for example, has the potential to attract further institutional investment during the pre-sale since these investors tend to stay in close communication with one another when it comes to supporting the same projects.
Having a hard cap on the pre-sale is also important. Without a cap on how much can be raised during a pre-sale, it is hard to gauge how successful a pre-sale is and that is what investors want to know. Also, if the pre-sale hard cap is too high and is not met, that could reflect badly on the project and can lead to a disappointing official token sale.
Transparency is also an integral part of pre-sale best practices. Communicating in a clear manner how much has been raised during the pre-sale and at what price is vital information for investors looking to partake in the official crowdsale.
Finally, a discount structure needs to be put in place that is enticing but at the same time not too aggressive since discounts that are too deep can, at times, scare off investors during the official token sale. Generally speaking, pre-sale discounts should not be more than 30 percent.
As a conclusion
In such a way ICO pre-sale could be quite profitable both for investors and ICO organizers. But anyway it should be taken into consideration that it’s not like all ICO campaigns need a pre-sale and it’s not like taking part in every pre-sale guarantees the profit for the investors. So the choice is yours!