Token sales before product launch
One common strategy for startups is to issue tokens before launching their product. It is a risky plan but potentially lucrative for early-stage companies.
How to enhance a web3 product with tokensBy selling tokens, startups can raise capital to fund product development and marketing efforts. The amount of cash raised through a digital assets’ sale depends on the demand for them and the terms of the sale — sometimes it's like an auction, other times it's a fixed-price offering. And, if the tokens go up in value, early investors can make a serious profit. In fact, in 2020 alone, startups made a bank with $1.5 billion raised through Initial Coin Offerings (ICOs), according to TokenData.
But, there's a catch. As I said at the beginning, issuing tokens before the product launch might also be a risky move. Why? Well, a major drawback is that early investors can be more interested in profiting from the expected increase in token value rather than in the web3 product itself. In other words, they want quick cash instead of supporting the project for the long run and believing in its growth. This can lead to a lack of long-term support for the business, and may ultimately result in negative publicity for it. There is another worst-case scenario that’s highly probable — if your product fails to find a market, the token's value may plummet, resulting in losses for investors.
Despite these risks, issuing tokens before the product launch can still be a lucrative strategy for startups, particularly in the blockchain and crypto space. In March 2021, Solana raised $40 million in a token sale, indicating the continued interest and demand for crypto assets.
KinEcosystem is a great example of a startup that crushed it with a token economy. It is a blockchain-based ecosystem that was designed to allow developers to create and deploy dApps with a tokenized rewards system. Some of the apps within the KinEcosystem include Kik, a messaging app that integrates Kin, and Perfect365, a makeup and beauty app that allows users to earn Kin for sharing their photos and engaging with other users.
Tokens in Web3 ProductsThey issued its token, KIN, before the product launch as a way to raise funds for the development of the KinEcosystem. The founders got $98 million through their ICO in 2017 and have since gained a significant user base. Despite the risks involved in issuing tokens before a product launch, KinEcosystem's success demonstrates that it can be a smart move for startups, especially in the blockchain and crypto space.
By the way, Kin didn’t just pop up from the thin air. I mentioned it on purpose as it is one of our clients. The Kin team turned to Lazarev.agency to go through radical innovations — a redesign of the 5-year-old website. The results were impeccable. The fresh and vibrant website has been a hit with Web3 enthusiasts, resulting in a 120% boost in organic traffic. This project is our huge accomplishment, and we couldn’t be more thrilled with the outcome. Feel free to check the success story by following this link.
So how to mitigate the hazards related to the early token launch and only benefit from that? From my experience, startups should have a solid business plan and a web3 product that offers real value to its target audience. But wait, there is more.
It’s also crucial to check out the legal and regulatory situation to avoid any headaches later on. Startups also need to think about the competition and demand for their product — that'll affect how interested investors are.
When setting up a token economy, founders need to make sure the incentives and rewards make sense for their long-term goals. Plus, they gotta have a plan for managing the crypto assets and keeping them valuable.
Fundraising-wise, there are different options to consider, like straight-up equity or debt financing. Maybe even a combo of different methods could work. The key is to figure out what is the best for your startup's specific needs. All in all, with careful planning and execution, companies in their initial phase can leverage token sales to raise funds and build a community of early adopters.