So many people have become millionaires overnight by investing in cryptocurrencies and initial coin offerings (ICOs), but there is also a great number of investors who lost hundreds, thousands and even millions of dollars. A lot of investors, traders and speculators lose money because, (a) they invest in businesses they don't understand, (b) they do not spend time researching about the businesses, products and managers before they invest, and (c) they do not do due diligence on the business, ICO or cryptocurrency.
Before you give your money to anyone who comes to you pitching their business idea, make sure you understand the business idea, the product or service and the person running the business. If the business idea and everything else sounds interesting but you don't understand the business and/or the industry, give yourself plenty of time to learn and read about it until you understand it.
After understanding the business, you still need to do your research and due diligence on the business. There are so many people who just jump into invest in ICOs and cryptocurrencies already trading on exchanges before doing a thorough research on them. Some of them end up being scammed when the ICO they invested in is completed successfully, but the people run away with the money. They take their website offline, remove their fake Facebook and Linkedin accounts and disappear. You know you have lost your money. You have been scammed. Others invest in cryptocurrencies already trading on the exchanges and the crypto-coins get pumped and dumped and they lose a lot of money.
Once you have understood the business, the next step is to know and understand the team involved in the business project. The team includes: the executive team, the advisory team, the backing team and the development team. The executive team comprises of the founders, co-founders, CEOs and managers. These are responsible for delivering the promises of the project. The advisory team are there to provide guidance and mentoring to the executive team. They are the experts in that particular business sector. Equity and debt holders of the structure that will deliver the project are the backing team. In cryptocurrencies their needs to be another team which is responsible for writing the code for the project and these are the development team.
You should look at the summary biographies of the executive team and then do your own research on Linkedin, github, Facebook, google, youtube, etc, to find out their employment history, age, education, skills and expertise. You should then ask yourself: Does the team have the necessary skills? If they have got some critical skills missing, for example, they do not have blockchain expertise, be careful. Furthermore, they should be really a team at the performing stage of team formation, not forming, storming or norming stages. They should have been working together for at least six months. In addition to this, you should also find out what their past accomplishments were individually and as a team. How did they handle success or failure and move on.
Moreover, you should find out how much of the ICO money they are planning to share for their own personal use. They shouldn't award themselves with a huge chunk of the ICO money. If they are planning to do so, be careful. If any one of the executive team members does not show his or her picture on their website, be careful. If any one of the executive team members has a history of running at least two businesses that fail, be careful. If you search and search on all social media including Linkedin and Facebook and can't find details and/or employment history of at least one of the executive team members, be careful. Be careful when they use miss-pelt names and/or use other people's pictures or names.
Furthermore, an involvement in fraud, ponsi schemes, crime, past business failures, etc by any one or more of the team members raises red flags.
Moreover, the development (dev) team must have experience in blockchain. Read about all their experience and companies and projects they have worked for in the past on Linkedin. In addition to this you must also search to find out if all those projects and companies they worked for in the past are genuine and are still existing. If they no longer exist, what exit strategy did they use, (eg. Buyout, bankruptcy, etc).
Next, you should have a look at the financial information. Look at the annual and quarterly financial information for the past three years. These include: (a) income statements, balance sheets, cash flows and footnotes; (b) planned versus actual results; (c) management financial reports; (d) breakdown of sales and gross profits by product type, channel and Geography (e) Current backlog by customer (if any); and (f) accounts receivable aging schedule. In addition to this, you should also study their financial projections, capital structure and other financial information.
After this, you should also understand the description of each product or service: Things to look at include: (a) who are the major customers for each service or product?; (b) what the historical and projected growth rates are like; (c) market share; (d) speed and nature of technological change; (e) timing of new products, product enhancements; (f) cost structure and profitability.
Other things to look at include: customer information; competition; marketing, sales, and distribution; research and development; and also legal and related matters.
After doing all this and other research not included here, you can then make up your mind on whether you should or shouldn't invest and how much of the money you are willing to lose you can invest.
Disclaimer: We do not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of reading any of our publications. You acknowledge that you use the information we provide at your own risk. Our publications do not offer investment advice and nothing in them should be construed as investment advice. Our publications provide information and education for investors who can make their investment decisions without advice. The information contained in our publications is not, and should not be read as, an offer or recommendation to buy or sell or a solicitation of an offer or recommendation to buy or sell any securities. Our publications are not, and should not be seen as, a recommendation to use any particular investment strategy.