There’s nothing so good it doesn’t have to be sold – and that even goes for ICOs and other crypto-related projects.
If you’re involved in a crypto or token offering (ICO/ITO), you’re going to need a white paper, at minimum, detailing the project and the underlying technology and making a compelling case for early adaptors, app developers, potential investors, partners, venture capitalists and other key potential stakeholders.
Here are the key elements that every white paper should address.
Understand the regulatory environment
Before you write your white paper, you should understand the applicable laws and regulations – particularly in the United States, which is still the biggest economy in the world, by far. Compliance is a critical issue with any ICO. If you’re actually trying to raise funds from the public, paying careful attention to regulations and compliance from the very beginning will be important to protecting your investors, keeping your firm out of court and even keeping your founders, managers and promoters out of jail.
Is your ICO a security? Will your launch fall under the auspices of the Security and Exchange Commission (SEC) or the Commodity Futures Trading Commission? Is it a derivative? Will you be raising capital in Canada? What about other countries?
Depending on the jurisdictions you’re operating in, you will probably need to register with securities or derivatives regulators – or you should clearly qualify for one or more exemptions from the registration requirement.
The world’s governments and international organizations such as the European Union are still trying to wrap their heads around how best to regulate ICOs, and balance the interests of encouraging economic innovation against the need to protect investors and speculators against misrepresentation and fraud. The regulatory environment is therefore changing very rapidly.
It’s a good idea to retain a securities lawyer with international experience while you’re still in the concept phase, and get their input as you develop your white paper.
Accredited investors vs. the general public.
In order to remain in compliance with applicable laws, your white paper may need to include some or all of the following provisions:
- Prohibit participation from certain countries or jurisdictions or restrict participation to individuals and entities from certain countries or jurisdictions
- Restrict participation to accredited or experienced investors. If you choose to market your coin or token offering to the general public, rather than restricting the opportunity to professionals and high-net worth, accredited investors, you may raise more money, in total. But you also generally take on a much heavier burden of compliance. Courts are more inclined to take a caveat emptor (“let the buyer beware”) approach to disputes where the offering is restricted to accredited investors only. They will take on a much more active role in protecting the public against fraud and material misstatements if the issuer is marketing directly to the general public. If an ordinary retail investor takes you to court, you will have a much heavier burden to prevail against them
- In Canada, accredited investors are defined under Section 2.9 of National Instrument 45 106 – Prospectus Exemptions. Note: Specifics may vary by Canadian province – all the more reason to have an experienced attorney involved from the beginning.
- In the United States, an accredited investor is defined in Section 230.501 of Regulation D.
You can find the basic requirements for accreditation or its functional equivalent in a variety of jurisdictions around the globe here.
Canadian readers: In August of 2017, The Canadian Securities Administrators (CSA) issued a must-read guidance document that details the principles under which Canadian regulators will be enforcing securities law in their efforts to protect the public against fraud.
Key Elements of a White Paper
Describe a need—and fill it.
The time-honored way to success in sales has been to find a need and fill it. Communicating both the need that will drive demand for your coin or token and how your offering will fulfill the need should be the main thrust of your white paper.
Describe the need.
The more market research you can bring to bear, the better. Look to answer the following questions:
- What is the nature of the problem?
- Why is it a problem?
- What is the extent of the problem?
- How many people have this problem?
- What does the problem cost – both individuals and in the aggregate?
- How will the benefit if this problem can be solved?
Describe the solution
Your ICO should provide a way to solve the problem you define above – as specifically as possible. Your description should attempt to answer these questions:
- How does the coin or token address the problem?
- What is the cost and how will the benefit exceed the cost?
- Why is an ICO an appropriate way to solve this problem?
- What does your coin or token do for the user that is different from existing solutions?
From the buyer’s point of view, the need and how the token will fill the need are by far the most important topics – and should be covered first. Everything else is in support of those two critical elements.
Provide a “road map”
Once you’ve explained the problem, and you’ve explained how your token or crypto project will be able to help people by solving it, the next step is the road map. This is a detailed, step-by-step plan of how you plan on getting from your current stage to full implementation.
It should include the following elements:
A timeline. Include key dates all the way back to your founding. It looks good to have a lot of these slots filled with accomplishments before you even get to the date of the white paper release.
Capital requirements at each milestone and how you plan to achieve those
A discussion of how your ICO proceeds will be invested in executing the plan
Detailed discussion of the technology
The next section should contain the technical details from the point of view of app developers and those concerned with security and scalability.
This section should include information on protocols, encryption and security, blockchain management, scalability and other similar issues and how the new token or coin will function in the blockchain environment.
Discuss any technical advantages and disadvantages here.
Anytime you need to convey complex relational information, it’s a good idea to do so as graphically as possible. Most people are visual by nature, and don’t want to slog through walls of text. And even the people who are willing to read through dense paragraphs of complex information will appreciate quality infographics to refer back to.
Use as much text as necessary to properly explain any graphics you use – but don’t try to go without graphics – especially if you want to have a reach beyond a very narrow market of quants and programmers.
Failure to incorporate graphics as appropriate is likely to needlessly turn off the majority of readers right off the bat. It’s simply too difficult to quickly grasp the needed information. The amount of money a good infographics professional can help you raise will usually pay his or her fee many times over.
Offering memorandum information
In many instances, a white paper and technology description by itself will not pass muster with regulators – especially if you want to market to non-accredited investors. In either case, whether you use a white paper alone to market to accredited investors and institutions, or if you choose to combine it with a prospectus or offering memorandum, it’s a good idea to provide detailed information about the following:
- Number of tokens or coin that will be created
- Initial offering price
- How long the offering will remain open
- How much will be retained by the company/issuer and management and how much will be held by outside investors
- How the coin or token supply will be managed and any caps.
- Buyback procedures and provisions, if any
- Considerations for a secondary offering
- How the issuer/management team is compensated
A discussion of risk
Any fundraising effort – whether to accredited or non-accredited investors – should include a frank discussion of risk. Failure to include it could turn off experienced investors who will be looking for that information as well as attract the scrutiny of regulators.
Furthermore, if you are brought into court by an unhappy investor, you don’t want to be explaining to the judge or jury why you didn’t inform the investor of the risks in writing when it counted.
Your white paper (or offering memorandum or prospectus) should include an exit strategy: How can early investors exit their positions for cash and when can they expect to do so? This section should jibe closely with your roadmap earlier in the white paper.
Traditionally, a discussion of the management and key personnel involved in the project occurs towards the end of a prospectus or similar document. The same can be true of an ICO white paper.
However, an exception may be warranted if one or more of the key backers is a marquee name in the crypto world. If someone like Natoshi Sakamoto, Elon Musk or Warren Buffett is deeply involved in a project, most investors would want to know about that.
Disclose your location
This isn’t just a matter of national or regional pride. It’s also a matter of attracting capital. One study estimates that with about 32 percent of ICOs, there was no information about the issuing entity’s or promotor’s location.
If there’s no way to be sure of the location, then potential investors have no way of knowing what regulations are in place to protect their interests. Some markets are more regulated and more pro-investor than others. If issuers don’t disclose their country of domicile in their white papers or other sales collaterals, crypto-speculators have to assume the worst-case scenario – and demand a premium return because of the additional risk involved in poorly-regulated or unregulated industries – a phenomenon known in the investment world as a risk premium.
This means fewer funds raised for the project, less potential for valuable partnerships or acquisition offers and more risk for the issuers.
Invest in a quality ICO White Paper writer
Lots of excellent programmers can’t write. Lots of excellent promoters can’t write, either. Commercial and investment copywriting is a specialized field. Skilled practitioners are used to writing for an audience of affluent to wealthy decision-makers – the kind of people with the assets to contribute significant amounts of capital to your ICO.
These people are serious-minded, but busy. The English doesn’t have to be native, but it has to be good. Poor English writing skills distract from your message – and reduce the possibility that your reader will read far enough into the sections that can close the deal and turn your readers into buyers.
A good writer will have experience in the crypto field – often writing white papers before. They can alert you to some common considerations and compliance issues, if they are very experienced. But they are no substitute for an attorney and securities/crypto law expert’s guidance from the very beginning of the project.