Many projects or apps that are on top of a blockchain usually generate funding through 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. 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 was 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 reject 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 voting, Community Fund Committee approval, completion of milestones, and, eventually, the release of funds.
One of the most interesting processes that a proposal goes through is the community voting. After meeting the basic criteria, the applicant needs to propose his or her idea on a public area of the NEM forums, which will be designated by NEM.
Afterwhich, the proposer will coordinate with the community fund committee on which date to hold the vote. If there are already two other votes happening at the same time, the proposal enters a waiting list until those votes finish. NEM users vote through importance, either in favor or against the idea.
There must be a quorum of at least 3% importance in the NEM blockchain, with majority (65%) of the votes being positive for the project to be considered accepted by the community. Otherwise, the proposal is declined.
The proposal will then be submitted to the Community Fund Committee. 80% of the Community Fund Committee must be in favor of the proposal to be accepted. If it does not reach the 80% mark, there will be two scenarios:
- The Community Fund Committee can outright reject the proposal. If this is the case, it may be proposed again after a waiting period of 2 weeks, but it has to address why it was previously rejected.
- They can propose a modified idea to the community, in which the community would again vote as in the previous step. This continues until the proposal is either accepted or rejected.
If the proposal passes the community fund committee, 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.
Why is this funding process a good path to take? Here’s our two cents. First, the voting process will give technopreneurs and developers a way to somehow sense the 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.
Indeed, ICO is not the only way. Community Fund Proposals offer a good alternative in funding a blockchain startup.
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