Launching a Token for Your Business: Is it a Good Idea?
May 2, 2023
Launching a token for your business can be a great way to raise capital, but it's not always the right decision. We've put together some factors to consider before deciding if launching a token is the right way to fund your business.
What is your business and do you actually need funding?
The first step in determining whether launching a token is right for your business is to assess your funding needs. If you can make a profit and generate revenue on your own, you may not need to raise funds.
For example, if you're a media company, you may not need funding. Instead, your main focus should be on making your business profitable.
However, if you're building a technology platform or product that requires significant investment, launching a token may be an option to consider. You can get funding globally, and it's easier than getting funding through traditional means. But before you start raising capital, make sure you've achieved some form of product-market fit, you've done market research and you understand your customer. You only get one chance to launch a token.
Token for growth
If you already have revenue, you may not need to raise funding. However, if you want to scale faster, you can use a token to raise capital. Before launching a token, make sure you have a strong product or community and a purpose for launching a token. You also need to have a way to create demand for your token so it doesn't inflate away or go to zero, which can damage your brand.
Token route vs. traditional route
Launching a token involves building with a community (a bunch of internet strangers), which is very different from traditional funding where you answer to a VC or a small number of investors.
Tokenized capital can also be programmable, for example with voting or access rights. Tokens are basically wrappers for some kind of utility on the internet.
Access to a global pool of investors
No single authority to answer to
Programmable and multi-purpose
Lack of mentorship and guidance from experienced investors
Investors may be more speculative and less strategic
Access to mentorship and guidance from experienced investors
Strategic investors who can help with business development
Limited to a specific geographical region
Often require a larger equity stake
Fungible vs. non-fungible tokens
Fungible tokens feel more like equity with monetary governance. Non-fungible tokens can be branded and may have more long-term potential, like branded equity (think of Moonbirds, whose community members change their social media profile picture to Moonbird, which they own). With non-fungible tokens, you can also limit the number of people and have more control over who your investors are.
Creating fungible tokens may also be more difficult because you have to be strategic in developing a healthy tokenomics.
An example of launching a token the right way
Arbitrum is an example of launching a token the right way. They built a great product that was tested and had a huge community before launching their token. Launching the token supercharged their community and every user and company got a token to use for further funding. This created great network effects.
Launching a token can be a great way to fund your business, but it's not always the right decision. You should consider the type of business, whether you need funding, and whether you have a strong product or community before launching a token. If you decide to launch a token, you need to have a purpose for it and create demand for it. With the right approach, launching a token can bring great network effects and provide the capital you need to grow your business.