Investing in an ICO for the first time can be a scary prospect: there are many options to invest in, and the unfortunate truth is that many of them will not yield profits. Just like any investment, due diligence has to be carried out to mitigate risk. With that in mind, here are a list of steps to take before investing in an ICO.
Scrutinize The White Paper
The white paper is a report that is prepared by the party that is about to launch its ICO. It is meant to summarize all details needed to allow for an informed decision about investing in the ICO.
“What we see depends mainly on what we look for.” — John Lubboc
Sections
A good white paper generally has the following sections
- A Problem
- Their Assessment of & Solution to the Problem
- The Token
- How does it interact with the economy?
- How does the technical aspect function?
- Key Milestones & Road Map
- Token Distribution & Fund Distribution
- The Team
An outstanding white paper is one that leaves the target audience with a clear understanding of the ICO. Companies such as Monetha[1] and Crowd-Genie[2] use clear and easy-to-read diagrams to help express complex ideas simply, which is definitely a plus point as it becomes more accessible to the masses.
Funding & Token Structure
While looking at the white paper pay attention to the details of distribution and funding.
“The difference between something good and something great is attention to detail." - Charles R. Swindoll
Key areas that a savvy investor looks out for would be the token cap, the cost of each token, the distribution of the funds and whether or not there was vesting.
At the end of the day, the white paper has to convince investors that the funds are necessary and will be appropriately spent.
Look At The Team and Its Backers
The team plays an important role in the success of an ICO. Just as a well-written white paper is useless without a strong product, a great product also needs to have an equally capable team to execute the launch.
Individually
LinkedIn
This is a great way to start understanding the strengths and weaknesses of each team member, as well as the level of experience they have in the field. With this, an investor can start to see what each team member brings to the table, and if it is in line with their ICO. There is no room for deadweight.
A quick search on their name will be useful in checking if they have been involved in any shady dealings or pyramid schemes. Bad press is always a red flag when looking to invest.
It should also shed light on the kind of backers behind this project; if they are supported by reputable entities, the ICO is definitely worth taking a closer look at.
As A Team
A team that hopes to launch a successful ICO needs to have a community that is both interested and supportive.
Take a close look at their social media groups and forums to get a feel of the community and interest level. This goes beyond just looking at how many members they have in their groups; numbers can be artificially injected.
More importantly, look at the type of interaction that goes on between the team and the community. When questions are asked, does the team make an effort to craft succinct but in-depth answers? How clearly is the potential of their product explained? Also, make a note of how frequent the interactions are; it is always good for a team to be prompt in their response.
Lastly, pay special attention to the constitution of the team as well; if there is a lack of blockchain engineers and an excess of experienced marketers, they likely do not have the ability to manage the technical aspect of a new cryptocurrency.
Legal Issues
If the ICO has passed through the white paper and team inspection, there still needs to be some checking done on the legality. Ensure that the company has complied with the financial and governmental requirements in the relevant states. If it is unclear or unmentioned, do contact the team and inquire about it.
Conclusion
ICOs are a new and exciting type of investment. Do not be frightened off just because it has received criticism; instead, do the due diligence and you will be able to invest with peace of mind.
Safe investing!
Mike