Many projects or apps that are on top of a blockchain usually generate funding through an Initial Coin Offering (ICO). ICOs have become common to cryptocurrency startup firms since this fundraising process is considered to be one of the most efficient and easiest ways to raise capital. ICOs move away from the rigorous and regulated capital-raising procedures required by venture capitalists or banks. Hence, many projects have gone on to follow this trail.
However, not all projects can be funded by an ICO. Many other factors must be considered for an ICO. One of which is whether or not a new token/utility coin is really necessary for the project. If you are a technopreneur, and do not want to run an ICO, there is an alternative way to fund your idea — NEM’s Community Fund.
The Community Fund was set up to promote the development of the NEM ecosystem by funding NEM startup companies to help jumpstart their businesses. It is also an avenue for the NEM blockchain to develop more real-world use cases that will highlight its versatility and applicability as a business-focused smart asset platform. About 300 million XEM were allocated for this fund during the Nemesis block.
This funding process requires an application. There are minimum requirements and guidelines for compliance. There is also a committee that approves or rejects applications. The specific critical criteria to be considered and their rationale can be accessed here: Community Fund Submission Requirement Guidelines.
Successful proposals go through four tedious processes: Community Fund Committee approval, community voting, completion of milestones, and, eventually, the release of funds.
One of the changes that are done to streamline the processes is for the proposal to go through Community Funding Committee first before it goes to the process of Community Voting. The committee, in a way, will sift through the proposals before the applicant proposes his or her idea to the NEM Community, through NEM Forums.
One of the major guideline changes in the whole NCF proposal process are the new funding tiers designed to meet the needs of anyone, in any circumstances, who may want to apply for funding. These tiers range from 0 to USD 40k “grants”, requiring only committee approval, USD 40k-150k and USD 150k-800k requiring a respective 1% and 2% of NEM Blockchain POI projected at YES address. A fourth tier, capped at USD 5m, requires 3% of NEM Blockchain POI projected at YES address, and is only accessible to publicly traded companies.
If the proposal is successful in getting the approval of the community fund committee, Community Voting shall take place. In the community voting process, NEM users vote through importance, either in favor or against the idea. The start date of the voting shall be determined by the committee.
Once the proposal is successful in the community voting, the milestones that are indicated in the proposals are monitored and have to be met. After the milestones are met, the funds will be released to keep the project moving and eventually succeed and grow.
For a more detailed flow of the process, here is a diagram.
Why is this funding process a good path to take?
Here are our two cents.
First, the voting process will give technopreneurs and developers a way to somehow sense the market and realize the viability of their apps/business right after the ideation stage. Second, the tedious processes of approvals at different levels will allow technopreneurs and developers to spot the loopholes and areas of improvements in their respective projects. These two points will improve the idea and/or project in the short run, and make the business more viable and sustainable in the long run. Not to mention the Community Fund as a grant from the community will not involve as many legal complications as doing a coin offering.
Indeed, ICO is not the only way. Community Fund Proposals offer a good alternative in funding a blockchain startup.