“The crypto space is evolving with new state of the art technology for fundraising and investment. The keyword is a token. A token is a utility, an asset, or a unit of value issued by a company. Initial coin offerings (ICOs) are a way for companies to raise money by issuing digital tokens in exchange for fiat currency or cryptocurrencies such as bitcoin or ether. The issue of ICOs has emerged as an alternative to traditional forms of startup financing. The issuance of ICO is generally preceded by the company issuing a Whitepaper on its technology and explaining the objective for raising funds. These tokens can be transferred across the network and can be traded on cryptocurrency exchanges. They can serve multiple functions: from granting investors access to a service, to entitling investors to a share of the startup company’s dividend. The Cryptocurrency ICO Stats for 2018 shows a total number of 983 ICOs issued as on December 1, 2018. The funds raised through ICOs exceeded USD 20 billion as on December 01, 2018.”- Department of Economic Affairs, Ministry of Finance, New Delhi
As discussed in the paper explaining ICOs, which can be accessed here, there are numerous advantages of launching an ICO. The market has established its unspoken rules, trends, and guidelines. The most important aspect before launching an ICO is writing an excellent Whitepaper, which is seen as the most important document during the pre-launch stage. Now let’s try to understand what a Whitepaper is and how to write an excellent Whitepaper.
What is a Whitepaper?
A Whitepaper is a detailed documentation of the problem that your (blockchain-based) solution is trying to solve. It gives a detailed explanation about the market statistic, product strategy, product technology, and it must include the details about the architecture of the technology to explain and highlight how a problem is solved. To a reader, a Whitepaper shall be perceived more like a science paper rather than the marketing paper, i.e., it shall be detailed and comprehensively explain the technology. But it should also be kept in the mind that this paper is also used to attract potential investors and shall be made as easy as possible to read Whitepaper. The goal of the Whitepaper is to give the information about your product, your team commitments, details about your advisors and investors, your company’s philosophy, and it should clear all the relevant doubts of your reader.
If you want to create a simpler Whitepaper for marketing purposes, it shall always be accompanied by a technical Whitepaper, but good and reliable ICOs always adhere to the explanation above.
The document shall be divided into the following section to cover all the intricacies:
Come up with a headline that catches the eyes of the user. If a potential reader spends more than 15 seconds through your project title and Outline, he is more likely to read the paper. 50% of the user’s interest can be gauged through the title. While deciding the title, the following points shall be kept in mind:
The primary audience of your project.
The biggest concerns that your prospective investors and clients might have.
Use extensions and software(s) to determine which queries appear most often on the internet for SEO purposes.
The title shall be short and crisp.
The abstract is very important as it is the gateway to your document. It shall be brief, concise, and accurate and shall not contain more than 250 words. If it cannot be put in lesser words than that, the idea needs to be refined further. The outline shall be able to answer the following questions:
What does this document contain?
Why should potential investors/clients read this document?
What are the inferences and propositions of this Whitepaper?
The project has to be meticulously outlined, and it is the most crucial aspect of the Whitepaper. A lousy outline would make the readers loose interest even before they start reading the project. It shall make the reader interested in the paper and should keep them engaged. The big investors read hundreds, and even thousands, of Whitepapers ever year and most stop reading after the introduction section.
In this section, the problem is stated and explained. The projects which have previously worked on similar issues should be highlighted. The marketplace for potential competitors shall be evaluated.
It is the most technical aspect of the document. The project, mentioned in the above section, shall be broken down, if possible, into smaller parts, and each part has to be given a specific solution. This breakdown of the project shall then be followed by a detailed solution tying the solutions to the smaller problems together. This shall be accompanied by market analytics, surveys, and (other) data to show the need for the solution and how it fits into the pre-existing marketplace.
The company, at this stage, would also have a prototype. To familiarize the reader with the project, use visuals, screenshots mockups, and other aids so that the reader would have a broad look and feel of the project.
This should be followed by the financial breakdown and how and at what stage the money would be spent on the project. This will help the reader an informed evaluation of the project and convince them that the project is not an ICO scam.
This should then be followed by the development of the roadmap. This roadmap would help the investors track the project and give them an overview as to where the project is headed. This will also help potential investors reinforce their confidence in your project.
This would be a make or break section in your Whitepaper, which would determine whether the reader would end up becoming a potential investor or not.
In this section, you would highlight the potential use of your token and explain why it is a ‘Security’ or ‘Utility’ token. You would also determine the pitch to prospective investors as the token being an investment or otherwise. You should give a detailed explanation of the tokens. This section explains the operating system of tokens and addresses the following issues:
The essence and significance of the blockchain technology and the token: value consensus (assets, tokens representing intellectual property, safe unauthorized coupons, utilitarian tokens).
Economic aspects and considerations of tokens.
Technical aspects of tokens.
Distribution methodology and redemption process: how are tokens intended to be distributed, how they would be redeemed, and why they would be useful.
Investor refund process in case the relevant targets are not met.
Token Release and market considerations:
This section shall focus on how many tokens are present in the circulation, what is their potential value, how many would be given to the team, and how many would be issued for ICO. This would contain the link to your website, and the readers shall be directed to the terms and conditions section.
This section should also contain the relevant details about the security of the platform so that investors can make an informed decision about whether your ICO is safe. Should you have chosen to employ a specialist security firm to launch your ICO, then you can also include information on their company. Security is a vital aspect of the project, and if the investors feel that the platform is not secure enough, they will not invest in the project.
Potential market, legal, licensing, and technological risks shall be highlighted in this section.
There is a clear risk with the issuance of ICOs as many of the companies are looking to raise money without having any tangible products. Regulators all over the world are mulling on how to regulate ICOs and digital tokens. Are they securities or not? How to tax them?
The regulation of digital coins or tokens depends on the characteristics and the purpose for which they are being issued. Depending on the objective of issue, tokens can be grouped into two broad categories:
Utility tokens: Utility tokens offer investors access to a company’s products or services. They are not to be treated as an investment in a company.
Security tokens: Security tokens represent investment in a company. Just like shareholders in a company, token holders are given dividends in the form of additional coins every time the company issuing the tokens earns a profit in the market.
What makes a token a security? The Howey test by the U.S. Securities and Exchange Commission(SEC) provides an objective framework to distinguish between utility tokens and security tokens. In order for a financial instrument to be considered a security and fall under the ambit of the SEC, the instrument must meet these four criteria:
It must be an investment of money;
With an expectation of profit;
In a common enterprise; and
With the profit to be generated by a third party.
Tell about the team members, developers, directors, advisors, partners, and investors in the project. Ultimately, an investor might not invest in the project but on the team.
How to make a better Whitepaper:
The content should be of top quality: If you are planning to issue an ICO, you ought to know it is a highly competitive sector, and you need to convince your investors to keep the competitive space in mind. The content can be enhanced by using quality graphics, flowcharts, graphs, and text.
Explain the business problem you are tackling from the perspective of the potential users of your blockchain product. If you are addressing an opportunity instead of solving a problem, explain what benefits you bring to the users. At the same time, explain how investors will benefit from your project.
The solution you are providing shall be explained in layman terms. The paper shall be written in such a way that it does not require any sort of expertise.
Don’t do this:
Don’t include any content whose originality you can’t guarantee! An allegation of plagiarism in your ICO Whitepaper can have severe impacts on your ICO. Such allegations might even prompt potential investors to treat your ICO as a scam!
The Whitepaper shall not use technical jargon as the potential investors are not all engineers or tech-savvy people, and if they have to focus hard while reading your paper, they might stop reading the paper midway.
Don’t leave the questions about your operating model open-ended. Many ICO investors worry about potential scams, and they want to see clarity about your operating model and organization structure.
A Whitepaper can make or break the project and can be a differentiating factor between a successful and unsuccessful ICO. Seek a legal opinion so that you can make sure that you comply with all applicable laws. A Whitepaper is an essential factor for the investor, and the way you present would determine whether the ‘pitch’ has been successful or not.
Identify the potential investors, their demographics, and their background. Conduct a lot of surveys, analyse market reports, and identify your users. The language and content of your paper shall be influenced by the same.
“By examining the two examples I have given, you should see just what I mean. Investors who lack a strong understanding of blockchain technology and programming are less likely to read Ethereum’s Whitepaper than that of ICONOMI. Both papers are specifically targeted to read well to the type of investors they want.”
In the end, seek a team of diverse professionals or people with various qualifications to draft the Whitepaper for you as it requires domain knowledge of a lot of specific aspects.
Siddharth Dalmia, the Startup Sherpa
Mobile: +91 9971799250
 Supra note 3