03.04.2018

ICO Sale and Pre-Sale: What and Why

Nowadays most of Initial Coin Offerings (ICOs) have two rounds of token sale – a pre-sale and ICO (or just sale). Many have a reasonable questions regarding these campaigns. Why do companies conduct two sales? What is the difference? Are they just the same? Not really, but they are similar. Let’s take a close look at them and see how you can use them for your benefit.

The first obvious difference is lying on the time line. Pre-sale is what goes before the main sale, usually a month or two, sometimes weeks or days before. One of the main reasons for a pre-sale is to raise funds to cover the expenses of the upcoming ICO as it’s really expensive. In particular the money is spent for advertising, marketing, meetups, conferences, strategic partners, etc. So, the funds mostly go to making the project visible for investors. An ICO is really similar to Initial Public Offering (IPO) that companies conduct to place the company shares on stock exchanges in order to become publicly traded. Similar to IPO common practice, ICO companies attract angel investors and select a few of them to invest into the project before the public sale to obtain the initial capital.

Both the pre-sale and sale are intended to raise funds for the project development, both have a target for the amount of money to raise, though a pre-sale has a lower target than a sale. The capital raised in a pre-sale is not included in the total capital of ICO, which may lead to a confusion as to what amount of money the project has gained in total. Both the pre-sale and sale have minimum and maximum amount of raised money. They are called a soft cap and a hard cap respectively. A pre-sale is usually shorter than a sale. In case the hard cap is reached the sale campaign is considered as closed.

If you purchase tokens on a pre-sale you can count upon more profitable conditions in comparison with the ICO, because tokens in this case are sold cheaper, with bonuses up to 50% and an extended smart contract. These bonuses are also announced by the project team to avoid mixture of the pre-sale and ICO funds. At the same time companies have varying membership requirements for the investors willing to participate in the pre-sale. For example, the requirement to be part of a larger pool of investors and the prohibition for singular investors to participate in the pre-sale. Anyway, sometimes companies allow for one-person investments if the amount of money is quite large.

Regardless of your investment plan for a long-term or short-term perspective, a pre-sale is an excellent investment opportunity. Since you get the lowest token price, there’s a great chance to increase your profits. The reverse of the medal are the risks you have to take into account. First of all, the project may not succeed, and therefore the token price will turn into zero. One more bad trend of pre-sales is that the early investors are selling all their tokens once they become available for trading on the crypto exchanges. This way they get easy profit by selling the tokens for a higher price. The danger of this practice is in the simple fact that mass selling of a token is significantly decreasing its price.

On the other hand there’s always a chance that the token price will go up. If this is the case and you were among the early investors on the pre-sale, you will multiply your investments. As a bottom line always remember that market is a self-regulating system, and where you see high profits, you must consider high risks as well.