What Is Soft Cap?
A soft cap refers to the minimum fundraising target a project team sets for their fundraising campaigns, such as an Initial Coin Offering (ICO) or Initial Exchange Offering (IEO).
It represents the minimum amount of funds the team aims to raise to proceed with the project’s development.
The soft cap is typically set as a speculative and arbitrary limit, contrasting with the maximum funding target known as the hard cap.
Considerations and Practices
If a project fails to reach its soft cap during the fundraising period, some teams may return the funds to the investors, while others continue using their collected funds.
Soft caps are not strictly enforced but are a guideline for the expected fundraising amount.
It is considered good practice for project teams to inform potential investors about why they set a specific soft cap and how they plan to utilize the funds.
However, not all projects define a soft cap, and many have successfully raised funds without specifying a minimum target.
Soft Caps as Indicators
Analyzing ICO metrics, such as soft caps, can provide insights into the team’s experience and understanding of their project.
Unusually low or high soft cap values may indicate inexperience or raise concerns about the project’s legitimacy.
Conversely, a well-defined and justified soft cap demonstrates the team’s experience and legitimacy.