1.
Costs and Considerations of an ICO: A Compliance Perspective
July 2017
Conducing an Initial Coin Offering (ICO) is the process of
taking your venture through the steps of:
• Gathering the necessary financial, marketing, and
business information;
• Determining the optimal tax and legal structure;
• Filing applicable forms with regulators, such as the
Securities and Exchange Commission, when
seeking appropriate exemptions, such as
Regulation D and Regulation S exemptions; and
• Marketing the business and selling the
tokens/coins to potential purchasers.
The ICO process continues until purchasers receive the
value for their tokens. Conducting an ICO is the process
of transforming the organization so that it can operate
publicly with accountability and transparency.
Among the many tasks involved are:
• Upgrading, sustaining, or enhancing financial
reporting capabilities;
• Creating an investor relations function; and
• Meeting the governance, reporting, and internal
procedures.
A comprehensive understanding of the costs involved
with an ICO includes the costs associated with both
taking the ICO to the public and then delivering on the
ICO post-offering.
Timeline of the ICO Process
There are many different costs associated with an ICO. It
is important to understand the nuances and unique
complexities that companies face during the ICO process.
While offering costs vary, as discussed below, a well-
prepared company is better able to mitigate the additional
expenses and time commitments that could push the ICO
process off course.
Offering costs of an ICO correlate positively with a
company’s revenue. In particular, legal and accounting
costs, areas where larger companies or larger offerings
may face additional complexities in preparing for an ICO,
increase significantly for larger companies or larger
offering. Not surprisingly, fees paid to legal counsel also
increase with the size of an offering.
IPO v. ICO
For comparison’s sake, the average cost of legal
services for an initial public offering (IPO) varies
from $500,000 to $2.5M USD with an offering range
from $10M to upwards of $300+M. For instance,
companies with revenues between $501M and $1B
incurred legal-related fees ranging from
approximately $200,000 to $7.5M, with an average
of approximately $2.6M.
In addition to systematically preparing for an ICO through
a readiness assessment, which can anticipate and prepare
for surprises, companies may be able to control costs in a
number of ways.
A best practice is to identify an individual, internally or
externally, that your team can utilize as an ICO advisor,
such as legal counsel, that can help management as they:
• Build the IPO plan;
• Keep task lists;
• Monitor progress;
• Forecast delivery dates;
• Identify gating issues; and
• Keep decision-making on track.
Further, companies may be able to minimize accounting
and legal costs by ensuring the company is properly
formed and appropriate corporate governance is in place,
all areas of potential regulatory focus have been
thoroughly prepared for in advance, and information
about the ICO is then made available and responded to
in a timely manner with complete and accurate
information.
Many companies create unnecessary problems for
themselves by not engaging in an ICO readiness
assessment prior to undertaking an ICO.
Question To Consider
Do we expect to utilize legal counsel related to the
organization and incorporation of our new entity,
including the drafting of bylaws and other
agreements?

2.
Costs and Considerations of an ICO: A Compliance Perspective
July 2017
ICO Readiness Framework
The costs of building and maintaining a company
infrastructure are just the beginning of preparing for an
ICO. As a result, in addition to the costs associated with
an ICO—the offering and incremental organizational
costs—there are significant expenses related to
compliance and purchaser expectations and reporting. As
companies think about their ICO, they want to think
about the following categories of considerations:
• Corporate Strategy and Infrastructure;
• Accounting and Financial Readiness;
• Governance and Internal Controls;
• Media and Investor Relations;
• Financial Risk Management;
• Legal;
• Tax;
• Manpower; and
• Technology Support.
These considerations are layered on top of the
technology of the offering platform (project management,
change management, communications) and ensuring your
technology partner understands its own obligations.
Gagnier Margossian LLP has addressed some of these
considerations below.
Corporate Strategy and Infrastructure
These standards address matters such as board
composition, structure, and process. An accountability
structure needs to be in place for the funds to be raised
through an ICO, and a large part of that accountability is
having the people and processes in place to provide this
accountability.
Accounting and Financial Readiness
Having your financial house in order is important prior to
issuing your offering/information memorandum for the
ICO. Key questions include:
• Do we currently have a repeatable monthly and
quarterly close process? Do we have the ability to
close our books accurately each quarter, and to
review and report the results to our purchasers?
• Does our finance department or third-party firms
possess the expertise with accounting and
reporting requirements to allow us to comply
with regulations?
• Does our financial planning and analysis function
have the ability to accurately forecast our results
to allow for more effective interaction with the
investing community and to assist in analysis of
the current period results for reporting purposes?
• Have we established an ethics and compliance
process and communicated it throughout the
organization?
• Are all our processes and controls adequately
documented and tested, or do we have a plan to
comply with applicable regulations?
• Does our technology infrastructure adequately
support our compliance efforts?
As a result of these considerations, there are a number of
different types of costs that are incurred, both one-time
and incremental ongoing costs, such as internal staffing,
external resources, and corporate governance.
Technology Support
Companies must also consider the need to increase their
technology function as a result of becoming company
funded through an ICO that has accountability to its
token holders and investors. Specifically, companies must
ensure that their systems and processes are documented
and tested to comply with any applicable regulations or
best practices.
Legal
Securities counsel is pivotal to the ICO process. Securities
counsel will be heavily leveraged to provide legal advice
to the company in its dealings with regulators, investors,
and technology partners. Generally, these pre-transaction
attorneys will be retained to provide ongoing services to
your entity in regards to the ICO, assisting them in
compliance with regulatory requirements and advising the
company regarding any legal matters related to the ICO,
pre-offering and post-offering Transaction-based
engagements can come at a higher rate versus engaging
counsel who can essentially help “quarterback” the entire
process.
Questions? Contact GAMALLP
Christina M. Gagnier
gagnier@gamallp.com