Soft Cap
What Is a Soft Cap
A soft cap refers to the minimum target amount that a fundraising effort, project, or investment seeks to achieve to proceed as planned. Unlike a hard cap, a soft cap is flexible, meaning the project can continue raising funds beyond this threshold if demand allows. It serves as a baseline for feasibility, indicating the minimum financial resources required to launch or sustain the initiative. For instance, in venture capital or crowdfunding, meeting the soft cap signals sufficient support, while failure to reach it may result in refunds to investors or cancellation of the project.
A soft cap in cryptocurrency denotes a target amount of funds that a blockchain project aims to raise during an initial coin offering (ICO), initial exchange offering (IEO), or other crowdfunding events. Unlike a hard cap, which is the maximum amount that a project can accept, the soft cap is the minimum funding goal that a project needs to proceed with the project’s planned development, product launch, or other milestones outlined in the project’s roadmap.
Projects establish the soft cap to provide potential investors with a clear understanding of the minimum viable funding required to achieve the project's initial goals. If the soft cap is not reached, the project team may have to reassess its strategy, scale down its operations, or even return funds to investors, depending on the terms set during the fundraising event.
The soft cap is usually lower than the hard cap, making it a more achievable goal for early investors. Reaching the soft cap demonstrates that the project has gained initial support and can move forward with development. Once the soft cap is reached, additional funds raised contribute to achieving more ambitious goals, expanding features, or enhancing the project's scalability.