What Matters Most in Evaluating Blockchain Projects — the Jockey or the Horse?
In fact, it’s not just the jockey or horse you should be looking at. They’re just as important as the other horses, the division, the racetrack, and the betters. To speak contextually — it’s not just the team or the product you should be evaluating. You should place just as much importance on the project’s competitors, the type of asset/project it is, the overall vision & use-case, the investors and the backers of the project. In this post, we’ll be looking at the jockey and what you should look for when evaluating the team behind any blockchain/crypto project.
Why is the team important? Let’s start from the top. A company is nothing but a group of people that come together and execute a solution to a problem or need. They form an idea and then spend years making that vision a reality. In return, they get compensated by their customers. Of course, in the blockchain world, this actually gets a bit more complicated because the whole point of a distributed, decentralized project is that there is no core or centralized team. However, this is an oversimplification. While most projects aim to be decentralized, they are still centralized to a degree in many respects. Take the following scenario, applicable to many projects today — a group of founders come up with a differentiated vision and start executing on the project. They decide how the protocol is coded, what kind of blockchain architecture is going to be utilized, and importantly, they decide the token economics. Most of the time, the founding team will collectively take a percentage of the entire supply as compensation for the value they bring to the project. The rest is distributed across the network and value accrues to anyone who holds the remainder of the tokens (users or investors) and anyone that helps the network run smoothly (validators, miners, block producers, etc.). Clearly, assessing team dynamics is an important part of the process. If done right, you’ll end up with much more clarity on how well the project is run, how well aligned various stakeholders are, and crucially for an investor — how value will accrue back to the coin (assuming it’s a token offering of some sorts).
What makes a good team? For this topic, we thought it would be easiest to lay out a set of guidelines to help you. This is not a comprehensive list, but it’s a good start.
1) Examine the depth of the team and its growth trajectory.
- Too small of a team is bad for obvious reasons. The team members may not have the expertise and time available to execute the roadmap according to schedule. In addition, limited resources means that inevitably some important areas of growth will be neglected.
- Too many people — especially at an earlier stage, before the company is in its high-growth phase — can also be problematic. Too many decision-makers means that compromises may need to be made, or at the least decisions will take time to pass through. There is also a higher statistical chance that there are some personality clashes, which reduces efficiency and promotes negative culture. In addition, this would require higher economics to be passed through to the team, typically.
- The ideal number depends on the project and stage, though if it’s unclear you should typically have a bias for a larger than average team. A growing team is generally a positive sign and indicates that the project has a need to hire additional people and the resources to fund it.
2) Figure out if the team members are who they say they are and if they even exist.
- Does the project mention who the team members are? Scams in the crypto world have been reported a dime a dozen. A big red flag is anonymity on the part of team members. Especially in ICO’s, a dishonest team is much more likely to not leave a trace of who they are so that they can collect the money and run.
- Are the team members mentioned legitimate? Don’t stop your research just because you find a team. Make sure that the team members are legitimate and that the website or whitepaper isn’t using fake names or photos. Scour social media like LinkedIn, Twitter, and Medium to see if you can match a face to a name, and a name to a background. Verify links between what’s out in the web and what’s in the whitepaper. One example of this: Empire Card was allegedly caught with an image of Sabine de Poncins, a French actress, as its CEO, which of course was a lie.
Share with: It would appear that upcoming ICO Empire Card has gotten caught red handed using fake profiles and images…www.the-blockchain.com
3) Is the team being compensated, and how so?
- The token economics are important when examining the incentives of the team. The team needs be compensated well enough such that it is motivated to carry forward all responsibilities and execute on the vision on a grand scale.
- The team should not be overcompensated to the point at which it dilutes value from the investors & users. Firstly, this isn’t in line with the broader premise of a decentralized platform. However, this would also cause stakeholders to find better projects where more of the economics are flowing back to the community, leading to a deterioration in value of the protocol, and thus less adoption and retention over time.
- Finding a middle ground is key. The actual percentage set aside for the team, or operators of the project, should be determined on a case-by-case basis. However, by understanding how the protocol works, comparing economics with similar projects, and broadly understanding the roles and responsibilities of the team, one should get a sense of what the appropriate compensation should be.
4) Explore the background and skillsets different team members bring to the project.
- What does the distribution of core strengths look like? Ensure there is a even distribution. Projects need a good balance of technical talent — developer talent, blockchain design, cryptography — and business acumen — operations, business development, marketing, community development. The best projects will tend to not have gaps in any crucial areas and will make sure that everyone’s role is complementary to each other.
- Previous experience with crypto and blockchain is a huge plus. Research the team leaders’ backgrounds to establish the types of roles they held at previous organizations, whether they were at the decision-making level, and if their knowledge is transferable to the current project. Founders with previous entrepreneurial experience are typically more well-equipped to start new projects, which are similar in many regards.
- Pay close attention to the number of founders. Just like any startup, having co-founders adds diversity of thought and generally leads to a better product and execution of vision, as well as better support systems. It also reduces key man risk, or the risk that the project fails because the founder leaves the project. On the flipside, having one visionary founder generally improves decision-making and the ability to stay focused on a core vision. We don’t view either as better than another on an absolute basis, but it depends on the project.
5) Is the project able to retain and motivate individuals, particularly ones in a leadership role?
- Try to determine turnover on the team, as this is crucial to your evaluation. You can do this by checking LinkedIn for the project or the individual, and determining whether any have left. In addition, a simple news search on individual’s that are part of the team (on the whitepaper versus the present) should yield results. It’s often difficult to obtain this information. Projects will rarely publicly announce firings, departures, or new hires, especially below the leadership level. However, this will give you a good sense of not only culture and motivation, but also competitiveness and attractiveness of the project. It’s particularly telling if a team member leaves to join a rival project. High turnover is particularly indicative of this.
- Do the founders have a history of leaving past projects? While past is not necessarily an indication of future when it comes to company or investment performance, we would argue that when it comes to people’s behaviors and habits, there is a higher correlation. Look at people’s Linkedin profiles and examine their job history, and more importantly the time spent in each role.
6) How has the team executed on their milestones to date and how does this affect their roadmap?
- A team that is good with hitting deadlines and executing in a timely fashion will most likely maintain those same standards going forward. A solid track record of achieving goals will instill more confidence that the future roadmap will be executed in a timely manner. This is important in ensuring that new feature requests and additional product developments actually happen. One can check developments on the project website itself, or on github. Typically, after a particular update, the project will mention a future date that is planned for a subsequent update. Corroborating that future date with the actual update date is one way to check that the team has executed on time.
7) What advisors, investors, and partnerships have the team been able to attract?
- It is a very positive sign if a team is able to attract a strong, well-experienced board of advisors. From one perspective, they will be able to directly inject the project into their own ecosystems, and use their connections to create the right partnerships. From another perspective, this is immensely valuable for branding and growth of the project. It’s a strong signal to the market that this project is legit, and has been validated by these individuals. In addition, it’s a clear signal that the project was compelling enough to attract them in the first place.
- Investors are necessary to provide the fuel (i.e. lots of capital) to fund the project and get it off the ground. They can also be useful thought partners. Having brand-name investors helps with market image as well as partnerships, marketing, and recruiting the right team members. It’s likely that good brand name investors will attract more investors down the line.
- Important differences between projects that are likely to do well, and the ones that aren’t, are a) how well funded it is, b) who is on the board of advisors, c) possibility for large partnerships through these connections. Invariably, limitations for success are due to running out of cash or not being able to get institutions or the community to use the product.
- Take a look at Stellar — regardless of what one might think of its use-case and blockchain architecture, it appears to be a very respectable project simply because of its credible set of backers. Including Naval Ravikant (AngelList), Patrick Collison (Stripe), Sam Altman (YCombinator), and many others from banks, VC firms, universities. Not only does this add validation, but also provides a set of partners that can take the project mainstream. This is the ultimate goal of any project.