DO YOUR DUE DILIGENCE: A Basic Understanding Of Where To Start When Selecting An ICO.
by Linda Mnkandla
One of my first social interactions with Cryptocurrency was a WhatsApp group a friend encouraged me to join. I wasn’t on it long before I decided it was not for me. What seemed glaringly obvious as my number one point of concern was the fact that it was a Ponzi scheme. “If you invest X amount of money, you can make Y and Z. And when you get new people to sign up, you then make more….” The world is full of dodgy souls, so the existence of this scheme is not what surprised me. What did surprise me was how many people eat up these schemes and buy into the get-rich-quick philosophy, some winning big and others losing out to their own detriment. When people lose thousands in Crypto from an ICO that turns out to be a scam, where there are red flags from the onset, I cannot decide whether the onus is on the crook or on the investor for not doing their due diligence.
Nobody deserves to be scammed or stuck having invested in a failed start-up. But when we consider the fact that (according to Bloomberg) 46% of 2017’s ICO’s failed, due diligence on both sides is warranted. For those seeking investment support, you owe it to your potential investors to provide them with as much information as possible in addition to ensuring that your ICO is well-structured like goldma.io. As an investor, it’s important to control what I can control. Not to say there is a formula to predicting what will succeed and what will fail. But before I consider buying into an ICO I need to see your website; I need to read your White Paper; I need to know that you have a good Social Media presence as well as be able to follow how your marketing admin handle investor questions. If no red flags pop up from these initial steps, I’m all set to delve deeper!
It is impossible to (extensively) research every single ICO that pops up. It is much easier to work out your own process of elimination to narrow the pool of ICO material you need to pour through before you settle on an investment. I like to have a look at the Roadmap on an ICO website. This breaks down where the company has been and where they are going. Paul Theroux said “Tourists don’t know where they’ve been. Travelers don’t know where they’re going.” Why would I want to invest with someone who is traveling or touring through the industry? I need to be able to trust that you have your feet firmly planted in the Cryptocurrency ground as opposed to someone who is just passing through. I need to be able to trust that you have a solid plan as opposed to being someone who woke up yesterday and decided that you had an idea for which you need funding. The Roadmap should give you an idea of the steps taken to reach the ICO point as well as the steps you will take once you have received the funding you seek. It’s important to me to be able to see that there is structure and planning beyond a brilliant idea. I need to be able to understand where all invested funds are going; and I need to be able to trust that this investment is worth my while.
A White Paper is something that should be ready and available to view prior to the ICO launch. It gives a thorough breakdown of the financial, commercial and technological details of the venture. It breaks down the Roadmap in detail as well as covers all other aspects of the project. I don’t like to see a start-up being asked to provide their White Paper as I feel it should be complete and accessible to the public prior to any pre-sale. One cannot add ingredients to a cake sitting on a display shelf as it is being viewed by potential buyers. Bake the cake, ice and decorate it, and then place it on said display shelf. Without the ability to properly execute a great idea, it is reduced to just that: a great idea. Whether my focus is the financial, commercial or technological, I should be able to get an adequate understanding for where the start-up is headed by reading the White Paper. I should feel comfortable that they have a legitimate team in place fully qualified to execute their vision. I should be able to understand their budget and how they have reached both their soft and hard caps. I should be able to understand how I benefit as an investor post ICO. Most ICO’s have platforms on which you can communicate with their team and other prospective investors. I enjoy being able to see what kind of questions other people have as it helps me identify areas that I may not have thought to ask about. It forces a level of transparency as people are able to disclose any issues they are having (whether it be a delay in receiving their tokens or failure to receive any refunded currency).
One-off wallet issues aside, when you observe a number of investors reporting the same problem, that is a red flag. From time to time you may find yourself on alert due to responses to your own queries. It is not unheard of for a start-up to make claims that they can’t support. For example, a team with a token backed by gold and diamonds is unable to provide an answer regarding where said gold and diamonds are being mined from. As a potential investor, I ask the question not to try and catch anyone in a lie, but because I think it is a fabulous idea to back your currency with something solid versus fiat. However I want to ensure that I’m not investing in blood diamonds; I want to ensure that the mines are not employing children; I want to ensure that this is a legitimate operation. If there is no proof of any mining activity and no indication of where and when it will begin, I don’t have enough confidence to proceed to invest. Read and follow the profiles of individuals or groups who are influential and credible. For example, ICObench lists new ICO’s (such as Goldma) and they are then rated by experts who know what to look out for. That is just one of many ICO Service platforms available for use. A great way to keep yourself informed and up-to-date with regards to any new ICO’s being rolled out. One cannot know everything there is to know about a new venture without researching, asking questions, and beginning to gain an understanding of what to look out for.
Buying tokens is not like buying pop: it’s more like buying fresh produce. Check for expiry dates; touch it; smell it; weigh it; observe it for bruises. If it turns out to be bad once you get home, at least you will know in your heart of hearts that you have done your due diligence. If you do land on something that turns out to be an amazing success, you can congratulate yourself for investing smart. This world of Cryptocurrency is exciting and growing every day. Make sure you strap-in before you ride!