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Funding innovation through cryptocurrencies - key factors

for successful Initial Coin Offerings

Student: Ioana Nicolau-Bandrabur

Supervisor: Prof. Dr. Hans Oppelland - Erasmus University Rotterdam Co-reader: Prof. Dr. Hans Borgman - University of Amsterdam

Date of submission: June 22, 2018 Total word count: 16.213

Thesis to obtain the MSc in Business Administration, Digital Business track, from the Amsterdam Business School, University of Amsterdam


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Statement of Originality

This document is written by Student Ioana Nicolau-Bandrabur who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

This thesis will investigate the key factors that lead to the success of an Initial Coin Offering campaign, also known as an “ICO”. ICOs have become a dominant way of funding new ventures since the market of ICOs has experienced a noteworthy expansion in recent years. Nevertheless, the number of publications addressing this topic is limited, particularly addressing success factors for such campaigns. In order to determine the factors which impact the level of success of an ICO, the decisions that founders have to take during the process of launching an ICO will be discussed through interviews with experts on the topic. Founders and ICO consultants will be asked to share insights regarding the best practices of conducting an ICO. Additionally, since the community is ultimately determining the success of ICOs by financially contributing to these projects, the opinions of investors will be investigated through a focus group. The findings will reveal that the complexity of the ICO process and highlight the aspects which are considered most important for the process of launching an ICO campaign through the development for seven propositions.

Keywords: Initial Coin Offerings, ICOs, token sales, Blockchain technology, cryptocurrencies,

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Table of contents

1. Introduction 1

1.1 Research problem 1

1.2 Research objective 3

1.3 Research method 4

1.4 Structure of the thesis 5

2. The State of the Art 6

2.1 Blockchain technology 6

2.2 The ICO Market 7

2.2.1 The beginnings 7

2.2.2 Evolution and risk factors: success, regulation and security 9

2.2.3 ICOs vs. IPOs 11

2.2.4 ICOs vs. crowdfunding 12

2.3 The ICO process 13

2.3.1. Pre-launch phase 13

2.3.2. Post-launch phase 14

2.4 ICO evaluation 15

2.4.1 ICO evaluation platforms 15

2.4.2 Investor signals 16

3. Research design 19

3.1 The conceptual model 19

3.2 Propositions 21

3.3 Multi-method qualitative research 22

3.4 Focus group 23 3.5 Semi-structured interviews 24 3.6 Research quality 25 3.6.1 Validity 25 3.6.2 Reliability 27 3.6.3 Generalisability 27 3.7 Data collection 28

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3.7.2 Interviews data collection 30

4. Data analysis & results 33

4.1 The data coding process 33

4.2 Focus group results 35

4.2.1 Project mission and vision 35

4.2.2 Token Economics 37

4.2.3 Presence in the cryptocurrency space 38

4.3 Semi-structured interview results 41

4.3.1 Match between ICO and business 41

4.3.2 Timing and priorities in each phase 42

4.3.3 Legal considerations 44

4.3.4 Communication 46

4.3.5 Team & advisors 51

4.3.6 Token economics 53

4.3.7 Minimum viable product 54

5. Discussion and conclusion 56

5.1 Discussion 56

5.2 Conclusion 58

5.3 Limitations and directions for future research 60

References 62

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1. Introduction

1.1 Research problem

In September 2016, Golem, a decentralised supercomputer company, reached its funding target of $8.6 million through an initial coin offering or “ICO”. The company sold out its digital coins in 29 minutes, without attracting interest from investment firms (Cap, 2017). A year later, Viberate, a blockchain-based marketplace for the live music industry,

successfully raised $10 million in 4 minutes and 42 seconds through an ICO (Cap, 2017). Brave, another example of a blockchain company, raised a total of $35 million in 30

seconds in June 2017 in the same manner (Cap, 2017). The startups previously mentioned represent a few emblematic examples for the efficiency of raising capital through ICOs. By definition, an ICO is a fundraising mechanism centred around blockchain technology and cryptocurrency. In an ICO, startups sell their underlying cryptocurrencies (also referred to

as “tokens”) to investors, in exchange for fiat currencies or other cryptocurrencies such as

Bitcoin and Ether (Hegadekatti, 2017; Choudhury, 2017).

Since during an ICO campaign a firm offers a stake in its business for sale, this funding mechanism can be compared to Initial Public Offerings or “IPOs” (Hegadekatti, 2017). However, while in an IPO the stakes are available for sale exclusively to investors, in an ICO they are being offered to a wider public, comprised of both investors and simple project enthusiasts (Hegadekatti, 2017). Due to their broad audience, ICOs can also be regarded as similar to crowdfunding campaigns (Rivas, 2017). However, in an ICO, the supporters of the project have incentives to invest in firm due to the possibility of gaining

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a return on their investment. In contrast, in crowdfunding campaigns, the supporters represent mere contributors willing to use a company’s service or product (Rivas 2017). Thus, as Dell’Erba (2017) described, ICOs are a combination of a grant and an investment, having comparable features with both crowdfunding and IPOs. Dell’Erba (2017)

contended that the major increase in the popularity of ICOs might be explained by the competitive advantage that they offer: ICOs are highly cost-effective for raising funding in emerging marketplaces that engage in elaborate, yet uncertain, economic dynamics. As a result, other highly regulated ways of financing, such as IPOs, are becoming deficient (Dell’Erba, 2017).

It has been observed that the capital market of ICOs experienced a noteworthy expansion during 2017 in particular (Conley, 2017). At the end of December 2016, the market cap for cryptocurrencies was amounting at around USD $18 billion, while in December 2017, it surged over $700 billion (Cap, 2017). Nevertheless, a major risk

connected to this increase in the amount of capital raised through ICOs is represented by the cryptocurrencies valuations. The enthusiasm from a large number of people who lack competences, but invest in these companies, leads to a high volatility in the value of these digital coins (Rohr & Wright, 2017; Sánchez, 2017). On this background, startup founders attempt to determine if the characteristics of their businesses serve as a favourable base for launching a successful ICO (Kaal & Dell’Erba, 2018). Thus, academic literature should aim at providing solutions to the issue previously mentioned.

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1.2 Research objective

With the growing success of this new funding system, there is little if any publication addressing initial coin offerings and more specifically, key success factors for ICO campaigns. The objective of this research is to identify the main factors that indicate the potential success of an ICO. The success of an ICO is not only defined by the market cap raised, but also by how the project evolves in the aftermath of the ICO campaign, how it interacts with investors, and what reputation it builds in the cryptocurrency space. By investors, it is referred to any individuals or groups willing to participate in an ICO funding campaign, in exchange for tokens. This thesis will outline industry experts’ and investors’ opinions on the signals that should be used for assessing the potential success of an ICO campaign. In addition, their advice will be used to determine the conditions under which a firm could potentially benefit from launching an ICO. Thus, the findings of the research are intended to aid companies in preparing successful ICOs, while guiding investors through the evaluation of ICO projects.

In order to attain the research objective of determining the critical success factors of ICOs campaign, a few milestones will be accomplished:

1. Firstly, the investors’ perspectives will be analysed and presented, as they represent the group who is ultimately determining the level of success of an ICO campaign. This will aid in the development of several preliminary themes which will be used to

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2. Secondly, the experts’ perspectives will be investigated and discussed. This will provide an in-depth understanding of how decisions should be made about different aspects of launching an ICO.

3. Lastly, since the perspectives of both sides finally impact success, these will be compared in the last section of this thesis in order to establish how founders should take decisions, while sending positive investment signals to investors.

1.3 Research method

Since the factors which could lead to the success of an ICO have not been yet determined and investigated in academia, the nature of this research is exploratory. As a result, multi-method qualitative research was found to be the most suitable multi-method for the aim of gathering and categorising experts’ and investors’ opinions on ICO success factors. This type of research allows for a more flexible attitude towards collecting information, useful for exploring and understanding in depth the events occurring in the ICO capital market. The methodology adopted will consist semi-structured interviews with experts and a focus group of investors.

In order to organise and make sense of textual data, the data collected will be analysed through open, axial and selective coding. These analysis techniques will be used to gradually group the data into categories, in order to finally define the factors that could lead to the success of an ICO campaign.

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1.4 Structure of the thesis

In order to develop a better understanding of the topic, existing literature will be briefly presented in the following section. Firstly, blockchain technology will be introduced, since this technology represents the base for launching an ICO. Further on, literature on the ICO market and process will be presented, and a brief overview of current available evaluation methods for ICOs will be given. Finally, the conceptual model will be introduced in the end of the second section. Further on, the third section will detail on the research design chosen to explore the success factors of ICOs and will present the way in which data was collected. The fourth section will detail on the data coding process and, subsequently, on the results yielded by this research. The last chapter of this thesis will entail a comparison between founders’ and investors’ opinions on the topic. Finally, a conclusion will be drawn and limitations and future research suggestions will be outlined in the same last chapter.

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2. The State of the Art

2.1 Blockchain technology

Today, the digital economy is relying on a number of certain trusted authorities. Since, the transfer of digital assets requires a mechanism to change the record of ownership,

participating in the digital economy implies giving trust to a third entity, which is

intended to ensure the security and privacy of digital assets (Crosby, Pattanayak, Verma & Kalyanaraman, 2016). As a result, most records of ownership are currently held in

centralised ledgers, which can only be accessed and modified by trusted intermediaries. Nevertheless, these third-party entities can be hacked, manipulated or compromised (Crosby et al., 2016).

Blockchain is an emerging technology that has the potential to improve the existing transaction mechanisms by offering a consensus protocol to mark records in shared

ledgers. In this case, ownership records and transactions would be visible across a vast network with multiple parties, not just to a third-party entity (Lemieux, 2016). In addition, blockchain offers increased levels of security, provides undoubtable provenance of

anything covered over the network and gives rise to new forms of assets (Furlonger & Valdes, 2017).

Essentially, a blockchain is a type of distributed, append only ledger, in which time-stamped, digitally signed, records of any kind are sequentially aggregated into blocks. Each block is chained to the preceding block and unchangeably recorded across a peer-to-peer network, supported by cryptographic trust and assurance mechanisms (Furlonger &

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Valdes, 2017). Blockchain can be configured to ensure the anonymity of its users, and the access or validation of records do not require trust in any central authority (Furlonger & Valdes, 2017).

Applications of this technology can be found across a wide range of industries - both financial and non-financial. However, the most popular and earliest use case of blockchain technology materialised with the launch of Bitcoin in 2008 - the first

implementation of a concept named “cryptocurrency”. Cryptocurrencies represent “digital monetary and payment systems that exist online via decentralised, distributed networks that employ a shared ledger data technology known as blockchain coupled with secure encryption” (Hayes, 2017). Cryptocurrencies are not under the control of a central bank and local government of a country, being ran and regulated by a set of mathematical functions.

2.2 The ICO Market

2.2.1 The beginnings

During recent years, raising funds for entrepreneurial activities has been difficult. The economic crisis and the emergence of new banking regulations have significantly

constrained the financing instruments available for ventures which are new or have low ratings (Boreiko, 2017). This has led to higher levels of banking disintermediation, as firms have started to look for funding outside of the banking system. On this background,

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a gradual process of democratisation and inclusion of small investors. (Dell’Erba, 2017). Empowered by the development of blockchain technology, ICOs started to represent the ultimate implementation of this process, becoming a viable alternative to traditional fundraising mechanisms (Dell’Erba, 2017).

The creation of cryptocurrencies - in particular of Bitcoin - is intrinsically related to the concept of ICOs. The success of Bitcoin has contributed to the creation of alternative cryptocurrencies which use their own blockchain - popularly known as “alt-coins” or simply “coins” (Hayes, 2016). The majority of altcoins are a derivatives of Bitcoin,

developed using Bitcoin’s open-sourced, original protocol with adjustments to its original codes (Hayes, 2016). Since the launch of Bitcoin had set the stage for the ICO market in 2008, Mastercoin was the first to put the concept of ICO into practice, launching the first campaign of this kind in July 2013 (Fisch, 2018). In exchange for their branded

cryptocurrency built on Bitcoin’s blockchain, the project was able to collect 5,000 Bitcoins, the equivalent of $500,000 at that time (Fisch, 2018).

Another important event which further sustained the emergence of ICOs is

represented by the development of Ethereum, a decentralised platform which incorporates smart contracts, allowing developers to build applications on the Ethereum blockchain and generate tokens (Dell’Erba, 2017). Ethereum, currently the second-largest

cryptocurrency by market cap, attracted a total investment of over $15 million for the development of their platform (Siegel et al., 2017). As the market for ICOs developed, a number of projects were able to raise large investments in a matter of minutes. In June 2016 it took three hours for the Bancor Foundation to collect $153 million, while in May

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ICO process implies the issuing of a branded cryptocurrency, most ICO projects are from Fintech related industries. The key cryptocurrency industries are represented by wallets, exchanges, payments and mining (securing the global ledger) (Hileman & Rauchs, 2017).

2.2.2 Evolution and risk factors: success, regulation and

security

As the market for ICOs has evolved, particularly in the last two years, ICOs have become a dominant way of funding new ventures. In recent times, ICOs have outperformed VC funding as a mean of raising capital (Dell’Erba, 2017). For example, while ICOs have

captured $4.5 billion in funding between January 2017 and March 2018, startups backed by VCs have raised nearly $1.3 billion (Rowley, 2018). This phenomenon is due to the fact that ICOs have several core characteristics which make them preferable to traditional

fundraising methods. Firstly, an ICO team is not obliged to trade equity in the project in exchange for funding (Dell’Erba, 2017). Secondly, since ICOs imply “borderless online sales”, the initiators are able to reach a worldwide pool of financial contributors while bypassing numerous legal and business obstacles (Dell’Erba, 2017, p. 14).

Nevertheless, while the ICO mechanism entails fast and seamless funding, it also poses risks to founders and investors alike. Since ICOs do not fall in between any

regulatory boundaries, investors are not protected or guided by law after investing in a project (Siegel et al., 2017). For example, since project initiators often have the option to sell their tokens without a holding time frame, they can take advantage from higher token values. Moreover, there have been a few examples of deceptive projects, in which the

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promises and information communicated by the founders were false, as founders’ only aim was to collect funds and use them for their own benefits (Siegel et al., 2017). In these situations, founders cannot be penalised by law and, thus, their reputation remains the only factor at stake. Nevertheless, initiators could be subject to legal liability if their ICO is considered a security sale (Siegel et al., 2017). In this case, regulations for financial

securities are applicable, which generates a number of supplementary administrative and legal responsibilities (Siegel et al., 2017).

In addition, on the background of information chaos, transaction immutability and the absence of a centralised authority, ICO projects have began to attract attention from hackers (Ernst & Young, EY research: initial coin offerings, 2017). According to a research report by Ernst & Young, nearly 10% of all the funds raised by ICOs between 2015 and 2017 are reported to be lost due to hacking attacks (Ernst & Young, EY research: initial coin offerings, 2017. A possible explanation behind this could be that while project initiators are directing their attention towards attracting investors, security is generally not prioritised.

The issues brought by the lack of security are not only affecting project founders, but also banks, cryptocurrency exchanges and investors. For project founders, as well as for exchanges, the losses might not only carry a monetary value, as indirect losses might occur subsequently to an attack (Ernst & Young, EY research: initial coin offerings, 2017). For example, if a project or platform undergoes a hacking attack, the reputation of the business might be altered, and the project might lose investors’ further support.

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2.2.3 ICOs vs. IPOs

As the names might suggest, ICOs and Initial Public Offerings (or “IPOs”) share a

common feature: in both cases, the founders aim at raising funds and attracting investors, in exchange for promising them potential returns on their investment (Siegel et al., 2017). Nevertheless, Kaal and Dell’Erba (2018), as well as Siegel et al. (2017), highlighted several key differences between the two.

In contrast to IPOs, where companies offer stocks, ICOs offer tokens which typically do not confer ownership rights, and unlike equity ownership, tokens typically do not convey a right to dividends (Kaal & Dell’Erba, 2018). Nevertheless, a few similar campaigns offer investors different types of membership rights, such as receiving dividends, voting or providing third-party services. In fact, these campaigns are called “Initial Token Offerings”, “ITOs” or “Token Sales”, represent securities, and are subject to regulation (Kogens, 2018). Secondly, while IPOs are launched by established businesses with a proven track record, ICOs are organised by new businesses that have a white paper as a business concept (Siegel et al., 2017). Moreover, as opposed to IPOs or ITOs, which are regulated by financial authorities, ICOs are self-regulated events. Given the lack of

regulatory constraints and procedures, ICO fundraising is significantly less expensive than traditional IPO fundraising (Kaal & Dell’Erba, 2018). Finally, due to limited investor

protection and legal obligations, participating in ICOs implies a higher risk compared to participating in IPOs, where under bankruptcy, equity owners can have a number of claims on the assets of the company (Kaal & Dell’Erba, 2018; Siegel et al., 2017).

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2.2.4 ICOs vs. crowdfunding

ICOs and crowdfunding can be catalogued as relatively recent developments in the funding space. When employing either method, project initiators use the Internet to raise funds for their idea, while allowing the participation of small investors (Mollick, 2014; Siegel et. al, 2017).

Nevertheless, there are major differences between these two funding models. First of all, while crowdfunding campaigns entail the collection of government-issued money, participating in ICOs implies that investment is captured in cryptocurrency. Further on, in crowdfunding, contributors do not expect to realise returns on their investments and have clear expectations regarding the final version of the product (Adhami et al., 2017). In contrast, the outcome of an ICO is less predictable and investors are motivated by gaining profits on their investments. This makes it possible for ICO projects to be over-evaluated, situation which is not typically encountered in crowdfunding campaigns (Adhami et al., 2017).

Despite the differences between them, both funding methods involve risks for their financial supporters. However, the losses encountered by an ICO investor would differ from the ones of a crowdfunding participant, since the later are not expecting profit from an investment, but access to a technology or product (Siegel et al., 2017). As previously mentioned, the market for ICOs is not regulated, whereas crowdfunding campaigns are subject to moderate, limited regulations (Siegel et al., 2017).

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2.3 The ICO process

Given the lack of regulatory boundaries and the dynamic nature of the market, the process of running an ICO has been constantly changing. Nevertheless, it has been observed that the majority of ICO teams follow a structured approach in order to prepare the launch of their campaigns (Dell’Erba, 2017).

2.3.1. Pre-launch phase

Once a team is formed and a business idea is clearly defined, writing a white paper represents the first step towards launching an ICO. A white paper is essentially the business plan of an ICO project and it is meant to support potential investors in their evaluation of the project. In brief, the document typically encompasses information regarding the technology behind the project, the functionality of the token within the project, the funding target and the token allocation (Siegel et al., 2017). In the last two years, ICOs have moved from an “uncapped” to a “capped” model, which means that the volume of tokens offered for sale is usually “capped”, being predetermined (Siegel et al., 2017).

Once the white paper is finalised, teams behind ICOs usually focus on establishing communication channels and forming a community for their project. “Bounties” are often used in this phase. Carrying out bounty programs refers to the outsourcing of various tasks, such as the translation of a white paper, visual design or proof reading (ICO success paper). However, bounties are mostly used for marketing, where the ICO team rewards

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members of the crypto-community with tokens in exchange for promoting their ICO on forums and social media channels.

Further on, the executive summary of the project is published on multiple cryptocurrency forums such as Bitcointalk, Reddit or Cryptocointalk. In addition, the projects choose ICO listing websites and create community Telegram groups. During this promotion period, the team receives feedback from the community and potentially adjusts the business model (Siegel et al., 2017).

Further on, a preliminary offer is often made to a selected group of investors. ICOs often offer discounts over the price of the tokens for the audience who was invited to participate in a pre-sale. Subsequently, the official offer of the ICO is signed, announcing the start date of the campaign. Lastly, in order to reach a larger investors audience, a PR campaign is launched (Siegel et al., 2017).

2.3.2. Post-launch phase

At the end of the marketing campaign, the ICO is launched and digital tokens are often listed on cryptocurrency exchanges for trading (Dell’Erba, 2017, p. 7). Depending on the strategy that the project initiators decide upon, tokens can be released and traded

immediately or distributed only after a product (usually a minimum viable product) was launched (Siegel et al., 2017).

While in the private sale the price of the token is arbitrarily set by the ICO team, in the post-launch phase price is determined by the market supply and demand (Dell’Erba, 2017, p. 7). Thus, if a startup is evaluated as a promising investment after the ICO was

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launched, the price of the token will increase. In contrast, if a project is deemed

unsuccessful by investors in the cryptocurrency space, the price of the token will plummet.

2.4 ICO evaluation

2.4.1 ICO evaluation platforms

At present, there are multiple online platforms which provide a curated listing and analysis of ICOs. Their aim is to promote successful ICO projects, helping investors map investment opportunities. However, the reliability and accuracy of the information that these platforms provide has not yet been verified by any trustworthy authority.

Acknowledging the issue, Hartmann, Wang and Lunesu (2018) analysed

information provided by 28 ICO evaluation platforms. They assessed the integrity of the platforms and subsequently ranked them based on three key factors: transparency of the evaluation process, centralised vs. crowd-based evaluation and the level of clarity of the evaluation result (Hartmann et al., 2018). In general, the authors found that the

transparency of the evaluation process is fairly low, with only 6 platforms providing in-depth details on how ICOs are assessed (Hartmann et al., 2018). They contended that most of the websites under analysis relied on the wisdom of their own teams to provide

evaluations. A number of 8 websites out of the 28 studied chose to incorporate evaluations given by investors and, thus, outsource evaluation to a larger pool of assessors (Hartmann et al., 2018). Lastly, they found that the level of clarity of the evaluation result ranges from unclear and subjective to less vague, more quantifiable ratings (Hartmann et al., 2018).

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Nevertheless, the criteria used in the evaluation mechanisms employed by these platforms can serve as a tool to assess the perceived importance of every key aspect of an ICO. Upon studying ICO evaluation platforms during their data collection phase,

Hartmann et al. (2018) identified a comprehensive list of information that was deemed relevant for assessing ICOs. The main information categories that they distinguished were: project information, team information, token information, ICO information, and technical information (Hartmann et al., 2018).

In more detail, they found that 26 out of the 28 websites place an emphasis on presenting the expertise of the ICO team. In addition, the white paper of a project was regarded as a key piece of information, as most of the platforms provided links to it (Hartmann et al., 2018). In contrast, the roadmap of a project, an aspect that the authors initially considered crucial, received less attention on the platforms, since about only half of the websites presented it. In addition, they also found that significantly less focus was placed on the technical information about an ICO project (Hartmann et al., 2018). While most of the platforms provided links to the software repository (usually hosted by Github), only one website included detailed information regarding smart contracts. Further on, none of the websites under analysis was found to provide information regarding the blockchain infrastructure that an ICO project is built upon (Hartmann et al., 2018).

2.4.2 Investor signals

At the moment, research on ICO success factors is limited to the criteria which investors should use for assessing the legitimacy and success of an ICO. Yadav (2017) and Adhami

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et al. (2017) investigated investor signals with the aim of refining the due diligence

methodology used by ICO participants. The insights that emerged from their studies will be briefly presented below.

Availability of programming code source: Adhami et. al (2017) found that the

availability of code source is positively correlated with the success of an ICO. This information is usually available on GitHub - a leading software development platform - and helps potential contributors make a preliminary assessment of the technical expertise of the team behind the project.

Quality of the white paper: Although Adhami et. al (2017) did not find statistical

evidence to support the importance of the white paper, qualitative insights

presented by Yadav (2017) show that the quality of information in the white paper represents one of the main criteria for assessing the success of an ICO. Findings from Yadav (2017) are in line with research conducted by Conley (2017), who found that confusing, incomplete or nonexistent white papers should signal a red flag for potential project investors.

Regulation and sentiment towards blockchain technology: Yadav (2017)

suggested that investors should monitor the regulatory approach of the local

government towards ICOs and the level of acceptance of blockchain technology. He contended that the blockchain ecosystem is dependent on community engagement (Yadav, 2017).

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Token economics: Adhami et al. (2017) found that the type of utility which a token

offers represents an important evaluation criterion for investors. They found that the right to access services or receive dividends is significantly correlated with the success of an ICO. In addition, Yadav (2017) determined that the possibility of trading tokens once the ICO has ended represents a key success factor for these campaigns.

Sentiment in the crypto-community: Yadav (2017) stated that investors should not

place major importance on the sentiment on online forums and chat channels when evaluating an ICO project, as most members of the community do not have a high level of expertise or credibility. Nevertheless, the use of promotion bounties was found to be a negative signal to investors (Yadav, 2017).

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3. Research design

3.1 The conceptual model

The conceptual model introduced below serves as a foundation for fulfilling the objective of this research: the investigation of critical factors for successful ICOs. The elements and relationships encompassed in this model have been derived from the literature previously presented in this section. Nevertheless, given the novelty of the ICO phenomenon, the amount of academic literature on the topic is limited and thus, numerous online sources were consulted. Since the reliability of these online sources cannot be verified, a few assumptions had to be made when selecting the factors to be analysed.

In order to verify whether these measures are accurate for assessing ICO decisions, insights from the focus group were used. As a result, the themes investigated under “Investors perception” represent broad topics, meant to foster an exploratory approach. Four out of the six major themes comprised in the conceptual model under “Founders’ decisions” will be discussed during the focus group: match between ICO and business, team, communication and token economics. The remaining two, namely “Timing” and “Legal considerations”, represent decision types which purely concern founders, thus, these should seek validation through the discussions with experts.

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The model represents a dynamic process composed of interactions between founders’ and investors’ decisions. While a part of these decisions are taken for the

backbone of the projects (such as decisions related to legal issues), others are related to the interaction with the investors (such as communication). The changes within the ICO initiation process can be explained by a feedback loop between ICO teams and investors. Thus, it is assumed that founders adapt their decision making process, while investors further adjust their due diligence methodology.

Founders’ decisions

Match between ICO and business model

Timing

Legal considerations

Communication

Team

Token economics

ICO Success

Fulfilment of the funding targeted amount

Presence in the cryptocurrency space

Development of the project post-ICO

Investors’ perception over founders’ decisions

Project mission and vision

Token economics

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3.2 Propositions

The following assumptions will be validated through the research methods to be applied in this research:

Proposition 1 The match between the ICO and the business model of a project determines

the success of an ICO campaign.

Proposition 2 The level of success of an ICO is impacted by timing considerations.

Proposition 3 Compliance with regulatory frameworks represents a key success for an ICO

campaign.

Proposition 4 Active communication with the community represents a key success factor

for an ICO campaign.

Proposition 5 The track record of the team and advisors of a project impacts the

success of an ICO campaign.

Proposition 6 The token allocation structure of a project impacts the success of the

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3.3 Multi-method qualitative research

Since the objective of this research is to develop a theoretical explanation of the processes and decisions that lead to the success of an ICO, the research strategy selected for

achieving this objective is Grounded Theory. This research strategy is usually

characterised by an inductive approach, however, Saunders, Lewis and Thornhill stated that it is more appropriate to switch between induction and deduction when adopting this strategy (2012). Both approaches will be employed in this research: on the one hand, data will be collected in order to develop new theory, while on the other hand, existing theory will be tested in order to verify if it can be applied to the topic of ICOs (Saunders et al., 2012).

The level of analysis of this thesis will be limited to the case of the worldwide market for ICOs. The research will not cover other close-related topics, such as the market for equity crowdfunding or IPOs. As insights on ICO founders’ and investors’ decisions will be investigated, the unit of observation of this research is represented by strategic business and investment decisions. These perspectives will be explored and documented at a single point in time, thus, this research can be characterised as cross-sectional. Since the factors which could lead to the success of an ICO have not been yet investigated by academics, exploratory research will be used to gain more insights and clarify our understanding regarding it. Nevertheless, as the ultimate goal of this thesis is to explain the relationship between ICO founders’ decisions and ICO campaigns success, this research can also be defined as explanatory (Saunders et al., 2012).

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Multi-method qualitative research was found to be the most suitable method for the purpose of this thesis, as it will entail a more flexible attitude towards collecting

information, effective for exploring and understanding in depth the events occurring in the ICO capital market. Semi-structured interviews will be used to examine experts’ perspectives on ICO success factors, while a focus group will be organised in order to understand how investors assess ICOs. By using more than one qualitative method of study, a larger scope for data collection, analysis and interpretation will be provided (Saunders et al., 2012). While interviews with experts will show ICO advisors’ and initiators’ perspective on certain topics, the focus group will be used to develop preliminary themes and achieve a reconciliation between the experts’ and investors’ opinions. Since founders and investors might have different opinions on ICO investment signals, this methodology will help founders understand how the contributors actually perceive a selected number of decisions embedded within the ICO process.

3.4 Focus group

As previously mentioned, since ICOs represent an unregulated market, information available to investors might often be misleading. Thus, focus groups represent a suitable method for allowing participants to not only state their views on the topic, but to also verify their information and clarify their views by interacting with other participants in manners that would be less accessible in a one to one interview (Kitzinger, 1995). The attendants will be encouraged to bring up issues of importance to them within the topic of ICOs, generate their own questions and exchange ideas with the rest of the group. The

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participants for the focus group will be recruited through the platform meetup.com with the help of an ICO consultant. ICO enthusiasts who are interested to participate will be able to subscribe to the event online, thus, the sampling method to be used is self-selection. The aim is to bring together a heterogenous group of four to ten people who are from a wide range of professions and share the interest in ICOs and blockchain technology. This will allow for the exploration of different perspectives within the group setting (Kitzinger, 1995).

Instead of guiding discussion through a predetermined set of questions, a simple structured format was chosen in order to facilitate open discussions about ICO projects. The light format is meant to aid in the exploration of themes within the success of ICOs. Three projects were selected by an ICO consultant to be discussed during these meeting: Ocean Protocol, Open Platform and IOTEX. Each project will be assessed in a

predetermined order. First, the mission and vision of the projects will be discussed. Subsequently, token economics will be analysed and, finally, the presence of the ICOs in the cryptocurrency space will be evaluated.

3.5 Semi-structured interviews

In order to cover varied perspectives of experts from the market for ICOs, a heterogenous sample consisting of ICO initiators and consultants was found most suitable for

conducting semi-structured interviews. On the one hand, ICO founders will be invited to share their insights and opinions regarding the chances and risks of launching an ICO, since they have been confronted with the different decisions that have to be made during

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the launch of such a campaign. On the other hand, since ICO consultants typically analyse and advise multiple ICO projects, their perspective could be more objective and broader. In addition, consultants are usually highly specialised in certain topics, thus this group could reveal in-depth insights regarding different aspects within the ICO process.

Purposive sampling will be used to recruit both groups of participants, as the

selection of interviewees will be made totally non-randomly (Mark, 2012). Since ICOs are a worldwide phenomenon, experts from Europe, USA, UAE, Australia and Asia will be invited to participate in this research through the LinkedIn platform and via my personal network. Interviews will last between 30 and 45 minutes, will be recorded and, further on, transcribed for analysis upon permission from participants. They will take place either online through channels such as Skype, Whatsapp, FaceTime, or in person.

3.6 Research quality

3.6.1 Validity

In qualitative research, the concept of validity in “corresponds to the concept of credibility, trustworthiness, and authenticity, which means that the research findings are accurate or true, not only from the standpoint of the researcher, but also from that of the participants and the readers of the study” (Yilmaz, 2013, p. 319).

Firstly, by employing a multi-method qualitative research approach and gathering data from both investors and experts, individual perspectives and experiences of one group can be compared against another. As a rich overview of the attitudes towards ICO

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will be constructed, multi-method research can be considered a source of triangulation (Shenton, 2004).

Secondly, it might be argued that using self-selection sampling for the focus group could lead to the sample not being representative of the population being studied.

Nevertheless, the participants are more likely to be involved in the topic as they will volunteer to participate in the research. In order to take part in the focus group,

participants would have to run a search on the meetup.com platform to find an event on this topic. Moreover, the meet-up will not be advertised. Thus, it can be stated that the individuals who subscribe to this event believe that it is for their own benefit to take part in the focus group, since they could be learning from other ICO enthusiasts. Moreover, Shenton (2004) stated that a random approach towards sample selection may eliminate charges of researcher bias.

In addition, the interview guide will be written after the focus group will occur, so that the questions asked to advisors would yield opinions which can be compared to investors’ ones. In order to ensure that the questions will be relevant for the objective of this research and easy to understand by participants, the first interview will represent a pilot interview. Respondent validation will be done after every interview, so that

interviewees will be invited to reflect and comment on the interview guide in order to constantly confirm that the questions asked adequately reflect the topic investigated.

Moreover, active listening will be performed during the interviews and follow-up questions will be asked. The interviews will undergo slight adjustments for specialists on the technology and legal topics, in order to ensure that respondents’ most valuable

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3.6.2 Reliability

Ensuring reliability in qualitative interviews is difficult compared to when employing quantitative research methods. As Bloor (2001) stated, in qualitative research “all research findings are shaped by the circumstances of their production, so findings collected by different methods will differ in their form and specificity to a degree that will make their direct comparison problematic” (p. 385). Thus, Yilmaz (2013) refers to reliability in

qualitative as to “dependability” and defines it as “the process of selecting, justifying and applying research strategies, procedures and methods is clearly explained and its

effectiveness evaluated by the researcher” (p. 319).

Noble and Smith (2015) contended that “meticulous record keeping, demonstrating a clear decision trail and ensuring interpretations of data are consistent and transparent” ameliorate this concern (p. 4). Thus, these suggestions will be implemented in this

research. In order to ensure that respondents’ answers are honest and that they will not try to conceal information to preserve competitive advantages, the interviewees will be

encouraged to give their general opinion on the topics in the interview guide, and not necessarily discuss specifics of their own ICO projects.

3.6.3 Generalisability

Generalisability refers to whether the resulting conclusions are general for a population or not (Stenbacka, 2001). In general, qualitative studies are meant to provide in-depth

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context (Leung, 2015). Thus, generalisability of qualitative studies does not represent a conventional attribute.

As indicated by Noble and Smith (2015), in order to compensate for this, rich detail of context should be provided. This would include the interviewees’ experience in the cryptocurrency space and the type of the projects that they supervise or manage. By

providing readers with this information, they will be able to assess whether the findings of this research can be applied to other ICO projects.

3.7 Data collection

The focus group comprised of investors represented an exploratory method and was used to shape the design of the interview guide for the semi-structured interviews with ICO experts. It offered in-depth insights regarding investors’ evaluation of ICOs, which provided preliminary themes to be further investigated and verified through semi-structured interviews with experts.

3.7.1 Focus group data collection

Participants subscribed for the focus group via the meetup.com platform. Once the

subscription was confirmed, attendees received a confirmation of the event via e-mail and the meeting was scheduled in their calendars. The focus group consisted of seven

participants and lasted for two hours. Four participants were early investors in Bitcoin and stated that they have been following the market for ICOs for about three years. Other two

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while another participant was building a chatbot for cryptocurrency intelligence.

Permission to record the session was granted before the activity started. The software used to capture the recording was Quickplayer.

During the focus group, three projects were selected and assessed in a systematic manner (Table 3.1). The projects were selected based on their funding status (ICO, pre-sale and post-ICO), field that they are operating in, and community sentiment.

Participants were sent the white papers of these projects by e-mail a week before the event and were be asked to review them prior to the focus group.

Table 3.1

Description of projects selected for analysis

Brief project

description Field

ICO funding target amount

Ocean Protocol

Decentralised data exchange protocol to unlock data for AI algorithms training Artificial Intelligence Target: $22,100,000 -Sold: $22,100,000 Open Platform Blockchain based platform providing payment infrastructure for mainstream applications Fintech / Infrastructure Target: $30,000,000

-Sale not launched yet

IOTEX

Decentralised network for the Internet of Things

Internet of Things

Target not disclosed

-Sold on pre-sale: $21,882,825  

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The first project to be evaluated was Ocean Protocol. Further on, Open Platform and, finally, IOTEX were analysed. After presenting the mission and vision of each project, participants were asked their opinion regarding these aspects. Further on, the token

overview was presented and analysed. Lastly, the presence of the company in the cryptocurrency space was considered.

Nevertheless, these three projects served as a base for discussing ICOs in general. Participants often brought examples from other ICOs to discuss their ideas, thus,

conversations often shifted to exploring and comparing other projects from the ICO market. As different opinions on a number of topics emerged, participants were often stimulated to exchange ideas and elaborate on their views. The moderator encouraged open discussions and asked follow-up questions to avoid long periods of participants’ inactivity. Before switching subjects, participants were asked if they wanted to add something to a topic before it was closed.

3.7.2 Interviews data collection

Potential participants were recruited via LinkedIn and via my personal network. Before being contacted through the LinkedIn platform, the professional experience that the

individuals displayed on their profiles was assessed, in order to determine their suitability for participating in this research. In total, 42 potential participants were reached out to and response rate was close to 48%. Interviews were scheduled via the calendly.com platform. Potential participants were sent a calendly.com link and were asked to select a preferred time slot for the interview. While booking the appointment, they encountered a question

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regarding their preferred channel for communication and were requested their contact details for the channel that they chose. Once the interview was scheduled, a meeting was registered in their personal online calendar. Seven interviews with experts from different professional backgrounds were finally conducted (Table 3.2).

Table 3.2

Background of the interview respondents

Expert type Name Background Country

Founder

Identity to remain confidential

Founder of a project which raised $11 million in the first quarter of 2018.

The Netherlands

Legal consultant Alessandro Mazzi Experienced legal advisor, specialised in ICOs.

The Netherlands

Founder & consultant

Shakil Muhammad Founder of bandz.network, advisor for multiple ICOs, conducting research on blockchain technology.

South Korea

Consultant Richard Trummer Advisor for multiple ICO projects.

Austria

Founder

Roberto Romano Founder of dayday.io, preparing to launch an ICO at the end of 2018.

Italy

Consultant & team member

Daan Maason Consultant and team

member of multiple projects in the USA, the Netherlands and Switzerland.

The Netherlands

Blockchain technology coach

Colin Meulema Blockchain technology expert, educational coach.

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One interview was held face to face in the office of the participant’s company. Six other interviews were conducted online via Skype and one via Whatsapp. All sessions were recorded using Quickplayer software.

In order to develop an accurate and complete interview guideline, upon the transcription of the focus group, insights which emerged from employing this method were used to determine a part of the questions to be asked to experts. Every theme

presented in the conceptual model under “Founders’ decisions” was supported by two to four questions on the topic. The overview of the interview guideline can be found in the Appendices section of this thesis. At the end of every interview, participants were asked to reflect on the interview and give their input regarding the quality of the questions they were asked. All respondents contended that the questions covered the topic in an accurate manner, thus, no incremental improvements have been brought to the interview guideline. In the last question, interviewees were asked if they wanted to provide any additional information on the topic of ICO success. This helped ensuring that respondents could discuss any other additional aspects that were possibly omitted during the interview.

Nevertheless, the interview structure was slightly adapted for two participants, since one of them was highly specialised in the legal aspect, whereas another one was skilled in the technological field. It was judged that it is better to offer these respondents more space to discuss the aspects that match their skills rather than discussing topics which are far from their area of expertise.

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4. Data analysis & results

4.1 The data coding process

The data collected for attaining the research objective was analysed through both

inductive and deductive reasoning. Deductive reasoning was mainly used for determining the core categories of data from the focus group. Data analysis was further used to test and segregate the core categories derived from existing literature into sub-categories. Further on, these sub-categories were used to validate the themes which were to be explored in the semi-structured interviews and design the interview guideline. In contrast, data from the semi-structured interviews was mainly analysed by using inductive reasoning. Thus, data which emerged from employing this method was used to create core categories of

concepts from specific references.

In order to organise and make sense of textual data, the data was analysed through coding. Coding represents the process of subdividing the data by assigning it to categories (Dey, 1993). Basit (2003) stated that coding “allows the researcher to communicate and connect with the data to facilitate the comprehension of the emerging phenomena and to generate theory grounded in the data” (p. 152). In addition, coding represents a useful method for analysing data in order to find similarities, patterns, contrasts and hierarchies between concepts (Seidel & Kelle, 1995). In order to improve the efficiency with which data was categorised, a qualitative data analysis software called “NVIVO 12” was used throughout the coding process.

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Open coding represented the first step in analysing the data. During this phase, data was labeled and references from transcripts were assigned to different codes categories. A large number of codes was created during this step, since the codes which emerged were rather specific to their underlying references.

Further on, in order to reduce the redundancy of existing codes and concentrate concepts into broader categories, axial coding was used. Connections between existing codes were made, and this led to the references within a number of codes being moved to other codes. In addition, sometimes references within codes were merged and grouped into a new code which summarised the references within the initial codes. Thus, codes such as “Team members’ salary” or “Funds burn rate” were merged into “Funds management”, for example.

Lastly, selective coding was used to determine the core and sub-categories. For instance, “Preference for security tokens” was nested under “Legal concerns”, as participants expressed their interest in security tokens since these are subject to several regulatory frameworks. At the end of this step, a few remaining codes were deleted, since they could not have been incorporated within categories and were not supported by a significant number of references from data. As an example, “Blockchain technology” was a code which initially emerged from the focus group data, but was finally removed since it mainly reflected a few participant opinions on the evolution of blockchain in contrast to other new technologies - topic which was not considered closely related to the evaluation of ICO projects.

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4.2 Focus group results

The findings which emerged from the focus group will be discussed in this sub-section, following the structure proposed in the conceptual model. An overarching finding is that in order to be able to make informed decisions, investors demand a vast amount of information regarding different aspects of an ICO project. Lack of detailed information might hurt investment prospects for an ICO, as an investor stated: “For me the most

important thing as an investor is to know where am I allocating my capital, to assess the risk. Otherwise it is just pure speculation.”.

For instance, regardless of how interesting a project might seem from a technical perspective, if the founders do not offer enough information regarding how funds are going to be allocated for different areas of the business, investors will refrain from

contributing to the project: “It might be great tech, but for me, from an investor perspective, they

are not giving me enough information to make a decision.”. Thus, ICO founders should give

sufficient information regarding all the aspects which will be subsequently discussed.

4.2.1 Project mission and vision

The potential of the business idea and the speed at which a project is developing are two key aspects that investors consider when investing in ICOs. These aspects are closely related to each other, since while investors feel inspired by projects which are truly innovative, they are also concerned about the feasibility of their objectives.

In terms of business idea potential, investors appreciate projects that have a clear vision of what it is to be achieved. They positively evaluate projects that solve important

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problems (e.g.: API payment solutions, data privacy) and tend to overlook projects which do not have an ambitious mission. For instance, an investor expressed his appreciation for the mission of Ocean Protocol by stating: “They really have vision for what it has to be, but

consumers have to understand the real value. It’s not just another Internet. They are kind of getting their data back, their rights back.”.

In terms of project development, contributors acknowledge that, ultimately, ICOs are startups and that even with having a clear mission, these projects are still likely to fail since the success rate of startups is generally low: “Sure, they might have some traction, but

they are always startups - so I do not have too many expectations, because most startups fail. That’s the reality, right?”.

Nevertheless, as investors try to minimise their risks, they are more likely to positively evaluate projects which have developed a minimum viable product, that have been present in the cryptocurrency space for at least a year before conducting and ICO, or that show constant progress in terms of product development. While assessing the

potential of a project, one investor explained: “Obviously you want to see if there is traction,

you don’t want to invest in something that’s been around for 1-2 months.”. Contributors might

regard projects with a slow evolution as lacking focus and efficiency. In support of this argument, one participant stated: “You can check their roadmap and their roadmap started in

May 2017, in August they started writing their white paper, and in November they prototyped key components. This is a slow startup, it is not even an efficient one. What took you so long? Three months to write a white paper?”.

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4.2.2 Token Economics

First of all, all participants agreed that any individual interested to invest in ICOs should not judge a project by the supply of tokens available or by the token price, as these are arbitrary numbers: “Supply doesn’t matter, it’s an arbitrary number, it’s psychological. Some

ICOs put a higher number because people think the coins are cheaper and they are going to buy more coins.”. Nevertheless, they are interested in how much of the token supply is diluted

by founders and senior investors.

In exchange, investors stated that they are concerned regarding the use case of a token inside a project. If the token model cannot be justified, they will tend to become skeptical about the project, as a participant advised the rest of the group: “The reality is that

most tokens aren’t utility tokens. That’s what you should always look out for. Is the token from the project an actual utility token? What is the reason to have this tokens? How are they used for transactions? Does it really have utility?”. Thus, investors believe that one should use his or

her own reasoning to determine whether the inclusion of a token model into a project is needed.

Further on, most participants were concerned regarding the token allocation

structure and how projects generally spend their funds. At some point, the discussion was mainly centred around the salaries that ICO founding team members are earning: “If you’re

making big claims and you’re being given $10 million, then you need to know how to spend it and I don’t think that the best thing is to get a CTO for $250 thousand a year.”. Nevertheless, they

agreed that, since innovative projects require exceptional talent in order to develop the technology inside their product, they are mainly impelled to offer high financial incentives

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to the members of the development team. However, they remain critical towards the way in which projects allocate funds for different aspects of the business: “Where’s the value in

bounty campaigns? If you have a $25 million raise and you allocate 1% to the bounty, that’s $250k at the time of the launch, but usually these valuations go up. So you are looking at a future value of $1.5 million that you could have retained for the company and use it to apply for exchanges, for example.”.

In addition, all participants agreed that vesting the team tokens represents a positive signal for investing in an ICO. Since scams are common in the cryptocurrency space, vesting team tokens is considered a sign that the team is truly dedicated towards the mission of the project. For instance, one investor declared: “That’s always a sign of

legitimacy, at least in my eyes. If the team is going to vest for 5 years, you know they are going to work on this and really take it seriously.”.

4.2.3 Presence in the cryptocurrency space

First of all, investors do not limit their competition assessment to the ICO market, but also evaluate whether an ICO project is in competition with well established traditional

enterprises or not. Some investors showed their concerns regarding the reaction of “big

giants” to the solutions proposed by some ICO projects. In essence, they worry about the

long-term evolution of such projects given the fact that they are seen as less powerful compared to technology companies such as Google or Apple: “The problem is that they are

competing with Google and Apple for market share - as I am sure that the big giants are going to battle back in some way.”; “I like the idea, but they might get dumped on the long term, that’s

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something I am always being aware of.”. They tend to worry less regarding competition from

projects in the ICO market, as investors believe that projects often form collaborations in order to combine their knowledge and develop faster.

Subsequently, most participants agreed that projects should accommodate the legal dimension in their roadmap. They believed that ICOs should not disobey laws and should ensure legal transparency in front of regulators. Contributors also consider that the

involvement of legal authorities will lead to faster adoption into mainstream of blockchain technology: “Accepting regulators in this phase means more mainstream adoption because you get

the con artists out of the game.”. In a nutshell, they explained that successful ICOs should

accept and comply with regulatory standards in order to prove their legitimacy, help in the exclusion of dishonourable projects from the market, and support the mainstream

adoption of blockchain technology.

As a result, a few participants expressed their preference for security tokens since these projects are subject to regulatory frameworks: “I keep on saying that 2018 will be the

year of the security tokens, that’s my firm belief.”. Another fact that explains their preference

for this type of tokens is that these will potentially enable a stronger link between revenue creation within the ICO space and revenue creation from outside of it: “They have value like

stocks and do payouts, so you link real revenue from the world and you pay it out in tokens. You can quarterly take out revenue that you actually get and pay it out to the token holders, which is interesting. Now we are actually only channeling money into the ecosystem from doing business outside.”.

The track record of the team members proved to have a major influence over how investors evaluate an ICO project: “I think the core team is the most important team, any VC

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that I know invests in people and in the track record of what they do - or what they have shown they are capable of without money.”. Thus, ICO contributors usually seek for information

regarding the founding team’s background and judge whether the team is prone to accomplish the promised result or not.

Further on, investors positively assess projects which are advised by individuals with a strong influence and reputation in the ICO market: “[…] but then they, for example,

had a very good advisor. It completely changes your perspective on the team or in general.”.

Nevertheless, they have doubts regarding the aspects that motivate advisors to support projects. They believe that advisors should be considered regular team members and, furthermore, should not be participating in a project’s pre-sale. In addition, contributors tend to dissipate the value brought by advisors’ support if these advisors are involved in multiple ICOs.

Lastly, communication with the community represents a key source of trust and respect for an ICO project. Contributors positively evaluate ICOs with active and transparent founding teams that answer concerns from the community on different channels. For example, some participants believed that the amount of group members in an ICO’s Telegram channel is an accurate indicator about how successful and trustworthy a project is. Nevertheless, others opposed this view: “I think it is a completely bad evaluation

to look at how many people are in the Telegram group because of bots.”. However, the more

ample the communication methods employed by the ICO team, the more trust the project is going to attract: “They have Medium articles and other things, if it’s a scam, then it’s a really

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the founding team is running a promotion bounty campaign: “Where’s the value in bounty campaigns? They are completely useless.”.

4.3 Semi-structured interview results

Results that emerged from the semi-structured interviews with experts will be presented in this sub-section. The aspects comprised in the conceptual model will be analysed in the order that they had been originally introduced. An additional theme that emerged from the interviews is related to the development of a minimum viable product. This theme will be discussed at the end of this sub-section.

4.3.1 Match between ICO and business

The most important criterion for assessing the fit of an ICO campaign for a business is represented by the relevance of the token use case. Respondents spoke about their concerns regarding many businesses that issue utility tokens and try to force Blockchain technology into their business model when there is not a relevant use case for this

technology.

Further on, ICOs should not be regarded as a mere funding method, but instead, ICO projects should aim at solving real world problems that could be best solved by leveraging the advantages brought by blockchain technology. Since this technology is relatively new and received a lot of attention, experts believe that a large part of the ICO founders acted as opportunists, who did not have a proper use case of this technology and used marketing tactics to secure funding for unrealistic ideas. As a result, ICOs have been

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overused as a funding source: “I do think testing and prototyping ideas is needed in order to

develop the technology. But ICOs have been overused. They became just a tool to raise money. ICOs need to solve a problem, they should not be taken just as a crowdfunding method.”.

Moreover, all interviewees agreed that an ICO campaign is best suitable for a

business when blockchain can actually enhance the business model and represent the base for disrupting an industry. Experts believe that investors need to be convinced that the technology makes the business model disruptive: “Now, the most important of all of this, is

that you have a really good idea and you choose a really good market to disrupt. I only tend to look at something that has a potential to disrupt trillion dollars markets, such as real estate, gambling, and technology platforms in general.”.

Nevertheless, when it comes to security tokens or ISOs, results are different. Some experts believed that if a company can prove that investors would benefit from returns on their investments, then the company would have a use case for issuing security tokens.

To sum up, the first aspect that company founders need to question before deciding to prepare the launch of an ICO campaign is if there is a need for a token to be embedded into their business model. Secondly, founders need to assess the potential that their business has to disrupt a certain market.

4.3.2 Timing and priorities in each phase

Despite the fact that the market for ICOs is highly volatile, timing is not generally an issue to be analysed in-depth when launching an ICO campaign. Experts emphasised that the uniqueness of the project is, in fact, one of the main keys to success, which overcomes the

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