Stuarts Humphries Banner Image

News & Insights

Top 5 Things We Look for in a Whitepaper

In the past year, we have reviewed many dozens of whitepapers for our clients and have a clear view of the matters that we would typically like to see included.

The below is a summary of the top 5 matters we would like to see covered in your whitepaper. We will of course advise on some of the more legalistic elements (notices, risk factors, disclosures etc.), but there are some core elements that should be present before we can add our provisions.

  1. Summary of the Problem, Solution and the Product Description

Whilst the term ‘whitepaper’ is typically synonymous with validating a technical solution, in an ICO context, they have morphed into a hybrid offering document.

Accordingly, we think the best place to start is to clearly set out what the perceived problem or obstacle is, how the proposed product or platform will solve that problem and how it will operate. Without this, it is difficult to understand why the tokens would be purchased or what they are being used for.

  1. State Facts Not Opinions

The whitepaper is, in essence, a sales document. Whilst it is therefore tempting to say how great you think the product or platform is or how big it could become, you should steer clear of presenting matters of opinion as facts.

All statements of fact should also be backed-up by independent source references. Matters of opinion should clearly be presented as such by using phrases such as ‘in our view’, ‘we aim’ etc.

  1. Describe the Purchase Procedures

Having gone to the effort and trouble of explaining why the tokens should be purchased, we often find that whitepapers lack detail as to how the token purchase procedure operates or what steps prospective purchasers should take.

In particular, a summary of any applicable whitelisting and AML or KYC procedures should be set out together with clear provisions on which prospective purchasers are excluded. For example, US persons.

  1. Describe How the Funds Raised Will be Used

We have seen many whitepapers where the only information provided as to the use of the funds raised is a pie chart with percentages ascribed to certain categories (e.g. 40% to platform development, 5% legal etc.) and yet almost no information is given as to how those percentages are determined, what happens to any surplus or deficit in a particular category or how the use of such proceeds will be accounted for.

Purchasers need to be clearly informed as to how the funds they contribute will be used.

  1.  Explain How Token Purchasers Are Protected

As a minimum, we would expect to see a whitepaper include the following provisions for the protection of token purchasers.

Firstly, a soft cap amount should be stated. This should be a minimum amount which needs to be raised in order for the project to be viable. If the soft cap is not reached in the ICO, funds contributed should be returned to the purchasers who contributed them. There should also be a ‘hard cap’ (i.e. a maximum amount of investment sought) and a limit to the number of tokens being generated.

Secondly, tokens issued to the team, advisors or other insiders should be subject to vesting or lock-up provisions so that they cannot be all immediately sold following a bump in value of the tokens. The whole team should maintain ‘skin in the game’ in order to be credible to purchasers.

Thirdly, there should be clear procedures which prohibit the team, advisors etc from selling their tokens as a reaction to ‘insider information’. This can be achieved by having the team and advisors agree that any sale of their tokens requires at least, say, 1 month’s notice. That way, it prevents a knee-jerk sale of tokens following some negative news.

Finally, the best way to protect purchasers is to ensure that they are presented with all of the salient facts and risks associated with the offering. Making sure a prospective purchaser is well informed before they agree to acquire the tokens, will likely ensure the best outcome for all parties concerned.

Contact our experts for further advice

View profile for Chris HumphriesChris Humphries
Managing Director and Head of Funds

This publication is for general guidance and is not intended to be a substitute for specific legal advice. Specialist advice should be sought about specific circumstances.