When a new project launches its token with an ICO they will often set a target amount they want to raise as the minimum point.
The creation of new cryptocurrency and blockchain projects often start with an ICO. ICOs take clear inspiration from Initial Public Offerings (IPOs), a term referring to when private companies first sell their stock shares to the public. This form of capital raising involves offering new tokens for the project to the general population in the hopes of raising initial capital.
The soft cap when it comes to ICO capital raising is how much the project hopes to raise as a minimum with their ICO. This is different from the hard cap, which is the maximum possible funding that a team is looking to collect. If a team receives donations exceeding their hard cap, the funds should immediately be returned to investors
The soft cap is important for a team because often if they do not meet that figure, they may sometimes return the funds to their investors. The idea of a soft cap is to set out a target needed to get the project off the ground.
The soft cap is not always enforced and is more good practice for platforms to inform their potential investors of their goals and ambitions with an ICO. For investors, soft caps also give insight into the experience and understanding of a new project's team. Many projects, that already have some buzz behind them, won't bother with a soft cap - Tezos, for example, pulled in a once world-record for an ICO, $232 million
Those caps that are either very low or overly high, will show little understanding of what they want to achieve with their fundraising. But, if the soft cap is suitable for the project's ambitions, this can be a good sign of a team's legitimacy and focus on its goals.