Everything You Need to Know Before Investing In An IEO
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Part 1
Since BitCoin hit incredible heights for investors of over $20,000 back in 2017, cryptocurrency has become the investment of choice for tech investors. In the rapidly evolving blockchain sector, there is far more to crypto than just Bitcoin.
The blockchain technology that Bitcoin is built on is also taking enterprise by storm and generating dozens of businesses bringing that technology to other sectors, such as supply chain management, healthcare, banking, and many more.
Savvy investors and early adopters are on the lookout for the next great opportunity in the market and IEOs/ICOs answer that call.
To give you a bit of historical background — ICOs (Initial Coin Offerings) were the OG funding arms for crypto projects & raised more than $6.5 billion dollars in 2017. However what goes up must come down and there is now a lot of skepticism in the sector, due to a lack of regulation leading to scam ICOs that were little more than ideas and a whitepaper.
Fear not however, these days, scrutiny is much higher and projects must deliver a greater level of transparency, demonstrable product concept and a realistic project development roadmap to name a few.
IEOs are the next iteration of the ICO, with increased transparency, more solid business ideas and regulation on the horizon. The landscape is still young, somewhat unregulated and reminiscent of the wild west, BUT, for those speculative investors, the huge potential upside of IEOs is this — the ROI potential is far more often than not too great to ignore.
Alas, with great power comes great responsibility, so if you’re going to invest in IEOs and influence the businesses of the future, research is important. And that’s where we’ve got you covered, we’ve compiled a long list of all the questions you should be asking as an IEO investor so that you don’t have to.
Without further ado, let’s get started:
What is the real world use case of the project?
Some industries aren’t ready or don’t particularly have a need for blockchain. A successful project will focus on industries that have a need or will benefit from it.
For example, in the precious metals mining sector, mining companies must meet increasing legislative demands with respect to environmental and labor laws. Compliance regulations are increasing every year, to the point that some miners don’t operate in certain jurisdictions because the cost and hassle of compliance is too great, even though the local economy could greatly benefit from the commerce in developing nations. Blockchain is an obvious asset and necessary technology in this case.
A private blockchain platform like Karuschain, for example, solves many of the compliance issues and greatly simplifies the compliance process, making it easier than ever before to meet these regulations. It can be used in many applications across the business. Karuschain is also able to track a precious metal from the moment of extraction right to the end consumer, so retailers and consumers can be comfortable knowing the gold in their jewelry was responsibly sourced and refined every step of the way and that no child labor was used. That’s a real world use case and the type of opportunity that has a greater chance of success.
Do I understand the whitepaper?
Investing in an unfamiliar industry can be daunting and that’s why the whitepaper is an essential document for your due diligence. A whitepaper is an authoritative, in-depth report that presents the problem the project is trying to solve and provides its proposed solution. It should contain all the information you need to determine the viability of the investment.
Who is on the team?
When it comes to IEOs, the experience of the team is one of the most important questions. Do they have experience in the industry they are serving or are they just pitching an idea in an industry they have little to no experience in? Who are the key players and who are the advisors? Is there much industry experience? How about the development team, have they successfully completed projects of this nature? Look for a well rounded team with relevant experience and a track level of success.
Is there a proof of concept or a minimum viable product?
The purpose of an IEO is to raise capital to bring a product or service to the market. When looking at an IEO opportunity, you need to determine whether they have a proof of concept (POC) or minimum viable product (MVP). POC is usually the demonstration of an idea, such as a blockchain technology. An MVP is a deeper level development of the product or a prototype.
POCs and MVPs indicate a serious intent to further develop the concept and that there has been investment made to take it to the next level.
Is there a clear roadmap?
When considering an IEO, check to see what the business development plan is. In IEOs this is called a roadmap and it’s an outline of the benchmarks and highlights of the product development. If there is not a clear roadmap provided or the milestones don’t seem realistic, maybe the project isn’t for you.
Is the project operationally sound?
There are lots of projects competing for the same investment dollars so be sure to look closely at the true business case. Is the concept sound, meaning will there be a demand in the market for the product or service, are there many competitors offering the same or similar products? Does the project have solid legal standing and a legal advisory team?
The whitepaper should summarize the project’s competitive advantages and it would be wise to compare them to the competition.
What happens if the IEO doesn’t reach its minimum CAP?
A minimum cap is the minimal capital raise level required to go further with the project. Just because an IEO doesn’t reach its minimum cap means it’s a scam. Lots of legitimate projects miss their soft cap, however, it is important to know what happens if this turns out to be the case in a proejct you invest in, as some IEOs continue to attempt to go further with the project and others return the investment to the investor.
How much does the ICO token or pre-sale token cost?
What are the various discounted price points for an ICO. The earlier into a project you buy, typically the bigger the discount on the price. For an IEO, the token price is fixed, however most projects conducting an IEO will offer a bonus which varies by exchange and method of payment i.e. using an exchanges native token vs another cryptocurrency.
Where will the funds and tokens be held until distribution
Less of an issue for a project conducting an IEO as the tokens are safeguarded with the exchange. Essentially how and when will you receive tokens is important to know and this information should be readily stated on the IEO listing and whitepaper.
How will the coins or tokens be used and distributed?
Take the case where a founder or team member receives a large percentage of the tokens, is it possible that they could just dump them and run? Make sure you understand what the lock-up terms are, and does it vary between advisors, team members, founders and early investors for example.
What happens to the tokens which are left unsold?
Some projects burn their tokens, others keep them for further sales or investment into another area of the business.
These are just a few key questions to ask when investigating an IEO/ICO investment.
In part 2, we will uncover even more to make sure you get the low down before you put your dough down! See you next week…
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Karuschain is a blockchain technology platform for the precious metals mining industry, giving mining companies a powerful tool to ensure data integrity, safeguard human rights, reduce risks and improve environmental regulations in their supply chain.
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