The Importance And Essentials Of A White Paper

The White Paper is an integral part of an ICO. Once a founder has determined that they want to raise funds through an ICO, they need to undertake multiple steps before the actual launch. Although drafting a White Paper is one of those steps, it is imperative that founders take care to include as much detail, information, and accuracy as possible — in fact, it is so crucial, that it becomes imperative for anyone attempting to launch an ICO to obtain an absolute understanding of a White Paper.

The White Paper is essentially the fundraising pitch that a founder gives to prospective investors. In traditional funding methods, founders often meet such investors; this is not always possible or even desired in an ICO. Therefore, founders need to create a document that explains everything they would normally do in person. This is the role that the White Paper fulfils and hence, needs to be as detailed and informative as possible.

The components of a White Paper have been touched on in a previous Oddup article that covered everything about Initial Coin Offerings. This article will discuss the topic in more detail and also shed light on another factor that greatly influences White Papers — what investors are looking for when reviewing this crucial document.

Essential Components Of A White Paper

Vision

The vision is the final goal as determined by the startup founder and core team. This includes the cause for inception, as well as the customer needs which the startup and its products aim to meet. This vision not only needs to be described as a final goal, but also needs to be broken into smaller, short-term goals that are more achievable. This enables investors to have understanding of the route that will be taken to achieving the vision, as well as give them a standard against which to compare deviations, if any, in the future.

Core Team

A detailed description of the core team is as integral to a White Paper as it is to a traditional fundraising pitch. Possessing clarity on the team that is driving the ICO as well as the startup itself allows investors to develop trust. This is instrumental in their decision to invest, as they are only likely to do so when they consider the team capable of fulfilling set goals. Highlighting each individual team member’s professional achievements also allows investors to gain clarity on the functioning of the team and the guidance under which the startup will work.

Market And Problem

Investors need to be convinced that a problem truly exists, and that the market is ready for a potential solution. Therefore, the White Paper needs to focus on a detailed snapshot of the market conditions, including the target audience. It also needs to depict that this audience has the requisite purchasing power and are in the right demographic. Then, there needs to be detailed explanation on the problem that the product aims to solve. The fact that competitors or other similar products are not correctly solving this problem needs to be highlighted and supported through research and data.

Product And Solution

After the problem is highlighted, it is essential to include a detailed solution. The White Paper needs to expressly state the complete details of the product, including its technical specifications, projected price, profit margins, and all other related information. It then needs to depict how this specific product solves the existing problem in a manner that others have not achieved. The unique features that set it apart from competition need to be specified, while also exploring why the market needs such features and whether the audience is ready to adopt this new product. Another aspect that needs to be stressed upon is the need for blockchain. Often times, blockchain is added only as a means to raise funds through an ICO instead of traditional funding methods. Hence, the product section of a White Paper needs to specify the reason and benefit of the incorporation or use of blockchain in the product, and why the product would not be the same without it. Furthermore, the White Paper also needs to include information on the mechanism of the blockchain, the infrastructure operation method, and any effects of software updates.

Everything About The Tokens

The White Paper needs to include all details about the tokens that investors will receive. These tokens can be of different types — utility or equity — and will face different legal regulations accordingly. The type of token that investors will receive, the benefit they carry, the manner and platform of distribution, and any applicable restrictions need to be clearly mentioned. Another important factor that needs to be included is how investors can use these tokens, and when and how they may be liquidated. These practical elements need to be included so that there is no opacity regarding what investors will receive for their investment.

Application Of Funds

The White Paper needs to provide, in detail, information about how the funds raised will be allocated. This links back to the long and short-term goals, and the application of a certain amount of funds to each. The purpose of this is to explain why a specific target has been set for the ICO and what will be achieved with this amount, if successfully raised. This enables investors to have a clearer idea of not only the product in which they’re investing, but also of the growth and movement achieved through their investment.

Statistics And Predictions

An integral part of any business plan and investment pitch, statistics and predictions need to be included in a White Paper too. These include all the research undertaken to prove that the market is ready for the product, and that the target audience has the necessary purchasing power and supporting infrastructure to adopt the product. A pivotal factor that should not be ignored is the financial standing and prediction. Investors need to be able to clearly see how existing funds have been utilised, as well as identify the financial trends in the market. Any predictions of sales revenue, profits, profit margins, and sale numbers, need to be backed by supporting statistics and calculations.

Detailed Roadmap

In addition to stating what will be achieved, the White Paper also needs to show how and when these goals will be met. A step-by-step roadmap that showcases dates, plans, deadlines, contingency plans, responsibilities, and fund allocation will detail how each goal will be achieved. This ensures that the founders remain answerable to investors. Furthermore, it also goes a long way in increasing investor trust in the startup, core team, and product, and allows investors to get a clear idea about how set goals will be achieved and what action will be taken in case of deviations.

These essential components of a White Paper need to be included because every investor looks for specific things when studying such a document. In fact, the template or format of a White Paper has evolved over time to include answers to questions that investors have when they review any funding pitch.

However, with the increase in ICO scams and hacks, investors have become extremely critical of the White Paper and will scrutinise the document to ensure that there is no indication of a potential scam, in any form. Investors look for specific things in a White Paper and their decision to invest in any startup’s ICO is determined by what they find.

What Investors Look For In A White Paper

Company Information

Investors don’t need information only on the team and the plans that the startup has. They also want to know the history of the company, including launch date, launch purpose, what has been happening since its inception, and where it stands in the competitive landscape.

Prototype

Explaining an idea and displaying a product design is great, but what investors really want to see is a prototype. They want to see the product in action because that is the only way to truly develop trust in the offering. It is even more beneficial if the product already has early adopters who have tested and reviewed it.

Blockchain

Investors pay special attention to the blockchain element in an ICO. Is the use of blockchain authentic or only a marketing play? This is one of the most prominent questions that concerns investors. Unless blockchain is integral to the product, investors may perceive the ICO to be a potential scam. Hence, explaining the incorporation of blockchain in detail is essential.

Team Strength

A White Paper will contain details about the core team of the startup and ICO. However, what investors really want to see is what skills and outlook does each member of the team bring to the processes of business management, product development, and ICO implementation. Understanding each member’s specific skillset and how it plays a role in the overall goal is of primary importance to investors.

Strategic Gap

Although most White Papers detail market conditions and state that a problem exists which needs to be solved, investors want to ensure that a strategic gap really does exist, and that too is one that is not easily met by other substitutes. How large is this gap? Is the product really going to fill it? Can others be persuaded to switch to the product in question even if they’re making do with another existing product? These are the questions that investors want answered to identify the real scope of the product demand.

Competition

Oftentimes, founders may feel that highlighting existing competition may have an adverse effect on a pitch. But investors will always find out about the competition through their own due diligence before determining to invest. Hence, it is easier for them to develop trust in the startup, founder, and product, if the White Paper clearly states existing and potential competition. However, this should always be accompanied by a detailed explanation on how the startup’s product will stand apart from that of other competitors, and how this competitive advantage will be maintained over time.

Realistic Roadmap

Setting timelines and deadlines is easy. However, investors are looking for a realistic roadmap, and not one that may be ideal, but unachievable. How realistic are the deadlines? What plans have been put in place to adjust for deviations? Have external factors that may change been taken into consideration? These are the questions with which investors approach the roadmap.

Research

Investors will always rely on proof, instead of just statements. Hence, backing everything up with qualitative and quantitative research is important. What factors have influenced and determined forecasts and how accurate are they? What is the research methodology behind the market size that has been determined? What are the factors that have allowed the allocation of funds to be in the ratio that they are? Investors will need such proof on every matter in the White Paper and, if not received, will always have reason to suspect any claim.

Format

While the contents of a White Paper are very important, investors also pay attention to the format and style of the document itself. A messy document that does not have clear demarcations and that does not contain accurate categorisation may be perceived as a lack of clarity on the writer’s part. Investors want to see a White Paper that is crisp, clear, and to the point, and that gives them all the information on the ICO, startup, and product that is critical and that they want to see.

Given the scrutiny expected from investors, it becomes crucial that a White Paper does not contain any elements that could raise flags. Thus, founders need to be very cautious and ensure that they include as much information as possible, while also making sure that the information is simple, easy to understand, backed by research or statistics, and presented well. At the same time, prospective investors need to be clear on their investment preferences and the reasons for which they are exploring ICO investment. This will determine how they review the White Paper, what they look for, and whether or not a specific ICO appeals to them.

This article was originally published on Oddup.com and can be accessed here. You can also click here to read more of Oddup’s articles on ICOs, blockchain, and the startup and investment culture.