ICO Fundraising – Raising Funds through an Initial Coin Offering
Ensure the successful start of your project by raising funds with an ICO, ITO, IEO or INO.
Legal assistance for fundraising through a token sale. Free consultation on request.
Legal Key Elements of ICO Fundraising
Initial Coin Offerings (ICO) as well as Initial Token Offerings (ITO) have become a popular way of raising funds and gathering investments for innovative projects. A brand new financial nomenclature has emerged subsequently, not limited to ICO and ITO, but also encompassing INOs (Initial NFT Offering), IEO (Initial Exchange Offering) and IDO (Initial DEX Offering). Inspired by the financial terminology of “Initial Public Offering” (IPO), these acronyms all designate the sale of a cryptocurrency in order to fund a project. Note that projects that have little to no relationship with cryptocurrency have also conducted ICOs as a mean to raise funds.
Investors have been on the lookout for promising projects to pour money into, but awareness has arisen after the numerous scams of the ICO mania of 2017-2018. As this fundraising system gained into popularity, an important number of malevolent actors profited off the trend —that one may call a craze— eventually generating mistrust and leading to the emergence of regulations.
As each project is unique, each legal structure is equally unique. Depending on the nature of the token, the project itself, where you are based and where your potential funders are located, different regulations or peculiarities may apply.
This page aims at providing you with a general overview of possible regulatory frameworks. Before planning a token sale for fundraising, we encourage you to connect with our specialists to get more certainty about the possible applicable frameworks for your project.
- Whitepaper
- Crypto License
- Terms of Sale
- SAFT
- Token Classification
- Project Legality
- MiCA
- Crowdfunding License
Professional preparation of your project's whitepaper
The whitepaper is not just important for marketing purposes. As it describes the mechanics of the cryptocurrency to be issued and sold, it is the first point of contact between your token and the legal reality. A professionally prepared whitepaper will be read by a project's community, potential investors and lawmakers. It is therefore decisive for the success of your project, starting by its fundraising event if this is how you planned to finance its development.
Naturally, the whitepaper should come as a conclusion of careful planning. Elements such as the tokenomics, the distribution schedule, the possible vesting of tokens for team members, the terms of the private and then public sale... are all strategic criteria that can make or break a crypto project in its earliest stages.
As our FinTech lawyers accompanied hundredths of teams in properly issuing their tokens, we gathered a very versatile experience around diverse fundraisers. Our specialists can assist with the proper realization of your whitepaper. Making the best out of our knowledge of the market and of cryptocurrency project, we will gladly assist in preparing a professional-grade whitepaper to ensure its best reception by your community and future investors.
Raising funds through an ICO/ITO in fiat: yes, it requires a crypto license
The act of selling cryptocurrency for fiat money is commonly known as on-ramping: your money "goes on the ramp" (to reach the blockchain). This is an allegory, as it is technical a simple exchange of a fiat currency against a virtual asset. Due to the intrinsic risky nature of cryptocurrency projects, banking institutions are very demanding to virtual asset issuers and service providers willing to open an account. Yet, a banking account and a payment gateway are necessary to receive fiat currency from your community and investors.
A crypto license is an authorization granted by a recognized financial authority to provide virtual asset services. The financial authority thereby confirms that the project is compliant with applicable regulation and its activity is conducted under its supervision. This is the best, if not only way, to demonstrate trustworthiness to banking institutions as a crypto project.
To put it simple: a crypto license is almost mandatory to conduct a fundraising event in a fiat currency such as the Euro of the US Dollar.
Note: if you are purely selling your newly issued token against another cryptocurrency such as ETH, a crypto license may not be necessary at this stage. For the sake of certainty, we encourage you to contact our legal consultants.
Terms of Sale for your token
As you shop online for goods and services, every professional website has its Terms of Sale (ToS) that provide a legal framework to the sale itself. Covering various adverse events and incidents, a professionally-prepared page of ToS prevents many potential issues and provides a ruling for the ones that may arise. It also signal proper preparation of the fundraising event and trustworthiness, as it demonstrates action taken in the direction of compliance and transparency.
The preparation of suitable Terms of Sale is one of many legal services offered by our blockchain lawyers. Our team has contributed to the preparation of such documents for fundraising events, private sales, public sales and other less standard offerings. For convenience, we usually comprise and offer this legal webpage in a bundle of documents facilitating the legal action of your project.
Simple Agreement for Future Token (SAFT)
The Simple Agreement for Future Token (SAFT) is a financial instrument that can be preferred by investors, instead of receiving tokens on a wallet.
SAFTs are usually sold in the very first stages of the fundraising process, as it precede the public sale. In short: a SAFT is an agreement between the project and the investor, that the project will sell X tokens to the investor at a discounted price once the cryptocurrency has been emitted. This allows the project to receive very early funding before even releasing the token, and with minimal legal complexity. On the other hand, the investors are benefiting from a potentially very low price on a future promising coin.
Preparing a SAFT is a simple and fast process for our lawyers. It is an inexpensive and effective way to raise capital very early in the stage of your project, provided that you reach an agreement with investors. As for Terms of Sale, SAFT can be bundled into a package of legal documents for your project.
Classification of the crypto asset to be sold in the fundraising event
The traditional breakdown of cryptocurrency classification includes three types of virtual assets:
- Payment tokens — a crypto asset with no other purpose than being transmitted and kept. Example: BTC.
- Utility tokens — a crypto asset which can be used for accessing certain services. Example: ETH.
- Security tokens — a crypto asset whose property amalgamates it to a financial security. Security regulation subsequently apply.
The key point here is, that in case the token to be sold is legally classificable as a security token, then a vastly more stringent regulation will apply to it. And failure to meet such heavy regulatory requirements can lead to severe sanctions. This is why every ICO and ITO isn't green lighted before the issuance of a legal opinion: a lawyers' assessment of the token and its possibly applicable rules. Our FinTech lawyer are familiar with many financial authorities' classification criteria of a security, and will confront the technical details of your token to the law in order to express an opinion on whether or not the security token classification may apply. If it is the case, our lawyers provide you with recommendations to re-qualify the token as per their assessment.
Note: in the case of European crypto projects, the MiCA regulation has enforced slightly different categorization, especially for virtual assets formerly known as stablecoins. As we put a comprehensive guide on the matter, we encourage you to speak to one of our consultant.
Assessment of the project's legality
In a more general way, the legality of the underlying project should be assessed before the fundraising occurs. As crypto activites are now regulated in most of the world, subsequent regulations apply. Naturally, other regulations may apply to other FinTech business models, depending on your exact plan.
Assessing the legality of your project, but also giving you pointers on how to further optimize your corporate structure and authorization processes, is part of our legal team's signature services. LegalBison provides tailored legal analysis of your corporate structure and business plan, in order to pinpoint the best cost-effective solutions to get started in full compliance at the earliest time.
How does the MiCA regulation affect ICO fundraising in the European market?
The Markets in Crypto Assets regulation impacts every virtual asset service provider in the European Union. Its effect on initial coin offerings is substantial, as it redefines partly the classification of crypto assets that is outlined in the "Token Classification" chapter of this guide.
LegalBison offers a hands-on and collaborative approach to its clients tackling the MiCA framework. Our blockchain lawyers are providing individual legal advice to crypto companies and projects preparing a fundraising event through an initial coin offering. We invite you to reach out to our consulting team in order to benefit from tailored advice and insiders' insights on the application of MiCA and how it may affect your business in Europe.
Token Issuance in Europe under the MiCA regulation is subject to specific rules and requirements. Crypto companies and entrepreneurs willing to issue any type of crypto-asset in Europe must absolutely acknowledge the new framework and ideally seek legal and compliance assistance.
Do I need a crowdfunding license to conduct an ICO fundraising?
To shortly address the matter of crowdfunding licenses, these authorizations are granted to crowdfunding platforms, meaning they are required if you are organizing and collecting funds on behalf of other projects or companies. This is the case of crypto launchpads, for example, when they organize a funding event around a new project that they incubated.
The answer is then no: there is no need for a fundraising license to raise funds through an ICO, ITO or else.
Legal documents package for crypto fundraising
Demonstrate trustworthiness to your community and to investors, open up the possibility to open a bank account and safeguard your team from potential legal repercussions. All the necessary documents to run your crypto fundraising in full legality.
Free consultation, contact us now for more details.
Questions to answer before raising funds through an ICO
Before kickstarting the ICO and raising funds for your project, no matter your roadmap, ensure that you planned for every legal aspect of your fundraising event. The following questionnaire has been designed to guide your preparation process.
Ready-made crypto licensed company for your ICO
Need to begin fundraising in the shortest delays? Shorten the legal process by acquiring a ready-made licensed company and proceed to the raise of funds within a few weeks.
Leave a request by exposing your project in details and our consulting team will get back to you with a detailed plan of action and a quotation for the necessary services.
FAQ about our legal assistance for fundraising through an ICO
By ticking a number of bullet points in the list of requirements: drafting a whitepaper, applying for a license (if needed), preparing the Terms of Sale and the SAFT, and properly classifying your tokens. All of this can be simplified with the assistance of LegalBison.
A crypto license for ICO fundraising is indispensable only if you provide the so-called off-ramping services, which is the exchange of crypto tokens for fiat currencies.
An ICO fundraising platform is a company that uses Initial Coin Offerings (ICO) to raise funds and gather investments for funding different types of projects. These platforms are mostly crypto launchpads – nurturing projects and managing their fundraising events, allowing crypto investors to buy tokens with ease.
Yes, to an extent. Just like crowdfunding, ICO is the process of gathering small batches of funds with the purpose of funding a particular project or company. At the same time, while crowdfunding involves a multitude of funding methods and currencies, ICO is concentrated solely on crypto tokens.
The regulator depends on the jurisdiction where your license is issued: most often, the local Financial Authority licenses and regulates all crypto-associated projects, including ICOs. In the last quarter of 2024, a new crypto regulation of the EU, commonly known as MiCA (Markets in Crypto Assets) will enter into force, almost completely changing the regulatory process for Europe-based projects. Hence, a consultation with a legal specialist prior to launching your ICO fundraising project is highly advisable.
Get in touch with our legal experts
Receive a free consultation on fundraising through an initial coin offering. Discuss your project with a legal expert to make sure you covered all the angles, and benefit from our assistance to get started.
Legal experts in designing solutions for crypto licensing worldwide.
Certified ACAMS consultant with 5+ years experience in compliance and FinTech regulations.
