Agile FundraisingThe ICO roller coaster

Luca Merolla

1

@lucamerolla

About Me

CEO and co-founder of GURUVEST AG

ICO Advisor, Business Angel

Computer Science and MBA

Dip. Managerial Economics

Dip. Management of Technological Innovation

Dip. Management of Information Systems

Silicon Valley Technology Venture Launch Program

PG Certificate in Private Equity & Venture Capital

PG Certificate in International Business

EPFL Innovation Startup Board Member Academy

EPFL Innovation Exit Strategy For Startups

2

1. Raising funds

@lucamerolla 4

Financing Life Cycle

@lucamerolla

Which financing options do you have?

Reason 1 Reason 2 Reason 3 Valuation Prototype

Friends, Family & Fools

You You You No No

Business Angels Domain You - No Better

Venture Capitalists Traction Exit Time Yes Must

Strategic Investors Channels Products Technology Likely Must

Crowd-funding Cool - - No No

5

2. ICOs vs “typical” startups

Whitepaper Business Plan

7

Smart Contract Convertible note, Term Sheet

8

Secondary Market IPO

9

Monetization

10

Typical startup Typical ICO company

➔ Advertising

➔ Selling products and

services➔ Token Model

@lucamerolla

Capital injection differences

11

Held

Initial fundraise

Crowdsale

Typical startup fundraiseTypical ICO

@lucamerolla

Valuation of Blockchain Startups

Liquidity 1.6x Premium

Dilution 2x Premium

Investor Rights and Protections .9x Discount

Regulatory Risk .87x Discount

Security / Custodian Risk .9x Discount

Total 2.25x Premium

12

@NotationCapital

3. GURUVEST Story: planning an ICO

STEP1:#wehaveaplan

Trip to Silicon Valley

@lucamerolla

Testing hypothesis: Silicon Valley, July 2017

16

US AttorneyLuca

I would like to raise money through an

ICO!

If you want to go to jail, that’s

the way to go!!!

#notimpressed

“Everyone has a plan 'till they get punched in the mouth”

Mike Tyson

17

Back to the Crypto Valley

@lucamerolla

Testing hypothesis: Back to Switzerland

19

??!?

Luca

I would like to open a bank

account for an ICO!

You might want to look for another

bank

@lucamerolla

Evolution of the costs to launch an ICO

20

July 2017 January 2018 July 2018

ICO Costs USD 40k - 150k USD 300k - 1M ?

Listed on Exchange

BTC 3 - 5 USD 50k - 3M ?

@lucamerolla

Utility or Security?

Even if your token is designed as a Utility token, it might be still qualified as Security depending on:

➔ The jurisdiction➔ How it is sold➔ To whom it is sold➔ When it is sold

21

Planning is a tool that works only in the presence of long and stable operating history

That’s the reason why we have agility!

22

4. Can Agility help?

@lucamerolla

Exploring Lean/Agile practices

24

Product oriented methodologies

Project oriented methodologies

Value Creation oriented frameworks

Decision-making frameworks

Agile/Lean

Product → Value creation (for customers)

ICO

➔ Product?➔ Value?

➔ Who are the customers?25

Assessing value creation

Stakeholders

Few customers but everywhere...

Understand the stakeholders

➔ Mostly targeting

investors, not users

➔ Attracts tech savvy

users

28

Decision Making

@lucamerolla

The Cynefin Framework

Best practices in ICOs are short-lived

Helps make better decisions by assessing

the situation you find yourself in

As our knowledge increases, we can move

through different domains

30

C = E

C ----------> E

C ≠ E

C E

COMPLICATEDCOMPLEX

CHAOTIC OBVIOUS

NOVEL PRACTICE

BEST PRACTICE

GOOD PRACTICE

EMERGENT PRACTICE

5. Analyzing ICOs

@lucamerolla

Crowdsource approach

Automate data gathering:

➔ Rating spreadsheets➔ Telegram channels➔ Amazon Mechanical Turk➔ Freelancer websites➔ Github hooks

32

@lucamerolla

ICO Focus Canvas

Community Development

● Custody● Usage of funds● etc…

Team

● Expertise

Customers

● Investors● Early adopters● Underwriters● etc…

Token Economics

● Hard & Soft Caps● Supply● Vesting● Sold vs Held● etc...

Advisors

● Field

Legal & Regulatory

● How is qualified and under which jurisdiction● Legislation

Partners

● Business Partners● ICO Partners● etc...

Prototype

● Hypothesis● Working● Testnet● etc...

33

Fund Management

● Custody● Usage of funds● etc…

@lucamerolla

Initial assumptions

34

3. Marketing

4. Regulatory

2. Technology

1. Business Model

4 domains chaotic ecosystem

STEP1 - The Business (Token) Model

@lucamerolla

Analyze the Whitepaper

➔ Sector➔ Experienced Team➔ Reputable Advisors➔ Market fit➔ Incentives➔ Monetary policy

36

@lucamerolla

Token Sale Phases

37

Private onlyPublic only Private + Public

They might differentiate in term of:

➔ Discount offered to investors➔ Number of rounds➔ KYC procedure➔ Network effect

@lucamerolla

The Holmium model

It’s a variation of the Freemium model adapted for the token model.

The goal is retain the value within the ecosystem by:

➔ Reducing the velocity➔ Reducing the liquidity

FREE(attract new users)

HOLD / LOCK(value within the ecosystem)

PREMIUM(generate revenues)

38

STEP2 - Technology

@lucamerolla

➔ Open Source - Be Careful!➔ Smart Contracts➔ Website➔ Working Prototype➔ Lockups

Analyze the Technology

40

STEP3 - Analyze the Marketing effort

@lucamerolla

ICO Marketing Challenges

42

Understand customers

➔ Limited number of “Potential Customers”➔ Large number of people who has never purchased a token before➔ Engagement is very high on some subjects / channels➔ Ads on Social media are not effective

STEP4 - Analyze the Legal and Regulatory aspects

@lucamerolla

Regulatory: highly unstable ecosystem

44

Everything is a Security!SEC Investor Bulletin - July 25,

2017

AML for paymentsFINMA guidance - 29 September 2017

FINMA Token Qualification!FINMA ICO guidelines - 16 February 2018

Next?

The Legal Framework

➔ The nature of ICOs is global, although it might be too expensive to focus on multiple countries

➔ Define your core building block (jurisdiction) and validate it

46

6. Discovering patterns

47

@lucamerolla

ICO Analysis Results

48

Negative or No Correlation Positive Correlation

Whitepaper Jurisdiction Team, Advisors, Market fit

Technology Open Source, Website Prototype

Marketing Social Media, Ads Storytelling, Community

Token EconomicsDiscount, Type of token, Fair Token Distribution

Token Supply, Incentives

Customer focus

➔ Advisors and Market fit have strong influence from VC and institutional players

➔ If a VC invest, it’s because there is a Market Fit

➔ Partnership is a good indicator of verified hypothesis

➔ Tokens are designed to be appealing for investors

49

@lucamerolla

The Importance of Storytelling

50

Explainer video of 1 minute is much more valuable than a Whitepaper

Different styles of communication have different meanings

“Invest in our ICO”(security)

“Buy our Token”(utility)

No need to educate people

@lucamerolla

ICO Marketing Consequences

52

Emergence of “alternative ways” to promote ICOs…

➔ “Investment” in bribing ICO reviewers➔ Fake Twitter, Telegram, Facebook followers➔ Telegram bots to have a fake enthusiastic active group➔ Contact list of crypto exchange users

@lucamerolla

ICO Practices using the Cynefin framework

Few “Best Practices”

Often in Complicated and Complex domains

➔ Requires experts and rapid response

➔ Multiple good solutions➔ The outcome might not repeat

over time

53

Best Practice Technology, Team, Storytelling

Good Practice Community, Crowdsale

Emergence Practice Token Model, Legal

Novel Practice Marketing

QUESTIONS?

54

thanks!

You can find me at:

@lucamerolla

www.lucamerolla.com