With so many ICOs happening (there are freaking apps to keep up with them!) it's good to know which ones have potential, but it's even more important to know whether investing in this space even makes sense.
There is that feeling of the dotcom's IPO fervor here all over again. People investing big money in hopes for high returns, not even understanding what the underlying alt coin even is or does... just that there is stupendous hype behind it and the scene overall.
At a higher level, what are some key points we should be considering before investing in an ICO?
1 - Is it a Copy Cat, an Incremental Improvement, or Disruptive Tech?
Crypto is highly speculative and ICO's are no different. If you're going to invest then we should know if the project is doing anything new or interesting. Do we really need **another** decentralized cryptocurrency that is just a bit faster than Bitcoin? Probably not. When evaluating new cryptos, understand how the coin is intended to differentiate itself from everything else in the space.
Disruptive: Is it solving a current problem within a specific industry that needs disruption and hasn't been touched by any other coin? For example, Augur is building a predictive market for forecasting. IOTA is removing the entire blockchain entirely and is intended to focus on being the currency for the Internet of Things to automatically process information between Internet of Things devices.
Incremental Improvement: Is the coin improving on a current problem within the crypto space? For example, Lisk is making it easier for developers to build Dapps by focusing on Javascript, a well-known language developers are familiar with. Stratis is doing the same, but using Microsoft's C# which is an industry leading language for enterprise software. Simplifying the process for onboarding development and supporting existing languages provides environments that can be robust and easy to start from. Nothing wrong with incremental, but it needs to solve some key problem.
Copy Cat: Is the coin just doing the same thing another coin is doing? Think, Dogecoin, which was created purposefully to be a joke of Bitcoin. It's viral marketing nature kept it from disappearing into the ether, but that doesn't mean that it or others similar to it have true industry differentiators to make them long term plays. Btw, I also love me some Doge :)
2 - How detailed is the plan? What is the road map?
It's great to have a whitepaper and detail out a project, but how detailed has the team really thought through their own project?
Short Whitepaper? No Details? Avoid! The whitepaper contains all of the core information you should need to know about the coin. Once you've done that, go to forums to read about some of the holes that may exist within those Whitepapers. See if the developers are actively addressing the concerns or simply ignoring them. The more information available, the greater the debate, and the more transparent a team is about their tech, the better it is for the investor.
No Development Roadmap? Avoid! What is the team's development and marketing road map? Does it make sense? Is the time frame reasonable? Has the team already proven it can stay on top of its own development schedule from before the ICO? I am wary of any project that doesn't have a detailed road map and so should you be.
3 - How developed is the technology?
One of the most important aspects to any ICO is IF the team has already begun development of the system surrounding the coin. Proof is in the Pudding as they say, and so should be any technology trying to raise funding through an ICO.
During the dotcom boom it was easy for almost anyone with a basic plan to raise funds, even without a Minimum Viable Product (MVP) and that led to so many startups from succeeding. They just had written something fancy on a piece of paper and on a power point presentation. With a slick salesman on the team these groups raised millions. The ICO space is feeling very similar.
I would never invest in a coin unless there has already been something proven and something working. A piece of paper is worth only what it costs to purchase it, not symbols written on it.
4 - Who comprises the Team and Advisory board?
Does the team have real experience in the space they are attempting to coinify? If so, how much experience? What about relationships to industry veterans who can elevate the project further? Ultimately our investment is betting on the people behind the coin, not the coin itself. Our investment is a vote of confidence that the team can pull off the incredible feat they have set their sights on.
So, doesn't it mean we should actually know WHO the team members are developing the tech? YES! Do your homework and understand the background of everyone on the project. Then ask yourself:
Are they full time? The worst thing is to have a part time staff. This means the project isn't their primary focus and it can mean the project may go slow or, even, no where. We want a full time team dedicated to fleshing out the vision.
How many years of experience do they have? Nothing wrong with the young diving into a killer project, but do they have support from a more experienced team? If not, then navigating the unknown could prove harder than initially anticipated. Nothing stays rosy for long. Having veteran team members can help to brave through turbulent times, which are guaranteed to happen.
Do they have every aspect covered? Architecture? Development? Scale? Business Development? Marketing? A team only comprised of technology developers can also prove to be a poor choice for investment. It's important to have a balanced team, one that can also get the word out, and build relationships to accelerate growth.
At the same time if a project only has a single developer, it's a single point of failure. If anything happens to that one person, the entire project can head into a downward spiral. Redundancies are required to ensure that no single person can make or break the project.
5 - Do they really need to raise $150M? Why?
How many projects are now raising over $50M or $150M in a single go (* cough * Bancor)? Is that a good thing? Depends, but generally speaking, not really. A small team developing a disruptive technology probably needs money in the low millions to begin with, in order to prove their case. From there they should raise further capital once there is a real use case and growth in userbase.
The idea of a paper company raising over $100M should have any investor question.. WHY DO THEY NEED IT? And the answer should have a solid breakdown of where funds will go. Specifying that X% will go to founders and early investors and the rest to the crypto community of investors says nothing. We want to know what will be going into hiring and what would the runway be for those funds. Real planning beyond just the tech is incredibly important.
Keep in mind that this is not a regulated space. We're in the wild wild west territory so anything put into an ICO should be considered thrown away for all intents and purposes. That is not to say the ICO can't be successful and the coin can't thrive, but the risks are high. So consider the facts and only put in what you can afford to lose.
Anything else we should consider when evaluating ICOs?
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