7 Must Have Checkpoints Before Investing in an ICO & The Future of This Market
While sitting in a coffee shop these days or reading your local news, you probably must have heard an intrigued conversation, or you may have read an educative article about the Bitcoin price, Blockchain and other crypto-something super hyped words. Most people will not do anything with the notion that something big is happening in front of their eyes.
In fact, this reminds me how we all hear stories about how our grandfather did not buy all the land in his neighborhood, so we were in a different position today. While this is commonly true, that most of the people, intentionally, choose to ignore opportunities coming across, there are still others that do take this advantage and jumping on such opportunities.
This is a wakeup call to all of you! Something big is happening these days, which is affecting our generation already, nevertheless future generations. Everybody needs to find what project or projects are most important to him or her, what communities and interests he or she wants to advance and get him or her toes first on and then all his hands to contribute and invest in these projects and newly created economies.
Not all projects are good opportunities. Not all projects are a scam! Filter out the noise made around you and focus on the core questions of how to examine your project or projects?
I will not teach you anything new, but I can highlight few considerably important checkpoints:
Standard points on your checklist that you would do in any project on or off blockchain:
- Area of Interest and knowledge — Does this project try to solve a problem in an area of your interest, you have a background knowledge or experience in? Like in real-life, investors typically will be more successful while investing in areas they are familiar with, they understand the underlying dynamics, and they are aware of changes and development in the space. You don’t!
- Problem Solved — What is the problem this project is trying to solve? Is this a real problem? What do others think about this? Do your research, please.
- The Team — This is a well-known and greatly thin minced, Team! Team! Team. But keep in mind — Super great teams cannot create value if the idea sucks. Good teams can create tremendous results and bring high value to good ideas.
- Other Investors — Sound obvious. People tend to invest with higher confidence knowing that there are other investors in. There are a lot of mathematical, economic and financial models that proof this, but at the essence, it is a psychological decision.
Don’t research for a business plan, go to market strategy or any other KPIs you’re probably familiar with from your MBA studying or your experience. It will take you all the way to the blind spot rather than to the sweet spot of the project. If you positively passed through all the points above, keep going to the real stuff.
Key points to check mainly as a token contributor or investor in an ICO project:
- Long-Term Token Appreciation — What is the token appreciation model and drivers? The way you are going to benefit from the success of a project you’ve contributed to or invested in is by gaining an increasing value of the tokens you hold. This value is growing as the project evolves and achieves technical and business milestones (Like in real life, ha?!). This success generates growing demand, which is reflected in the currency price (or token price), which you can trade (buy or sell) in exchanges or directly from/to other investors. These tokens may carry other utility values (like, you can use this token to buy bandwidth or storage provided by the project) or capital values (interest, dividends, repayment, etc.).
- Funds Distribution — What is the team going to do with all raised funds? How much is going to R&D, Marketing, Operation, Founders, Advisers, or any type of expense or investment? Easy — do your math. If you know the industry, these numbers will make a lot of sense to you, or not. It is a crucial trait to evaluate the project as a whole, and it increases the chances for you to judge this project properly.
- Token Distribution — This is the business model of any crypto project. Don’t try to decide whether this business model will work or not. In most cases, nobody knows. BUT do understand key indicators. This will help you to give yourself answers related to the questions which are: who are the customers (payers), who are the providers (payees), how many tokens are going to be circulated (or issued if you want, which partially affects the long-term appreciation), what are the key stakeholders motivations and the overall economic around the ecosystem this project intends to create.
- Token Economical Values — Ok, so you’ve been convinced that this project is for you and everything makes sense so far. Like with any other economy, ask yourself if this project is really creating an economy that should be directly related to its own token (or currency) and that is the only vehicle to drive this economy forward. There are two main questions you should ask yourself — (1) Does this project show unique benefits and create core competence advantage by utilizing the blockchain benefits? (trust, immunity, transparency, equilibrium ecosystem, cost-effectiveness, etc.); (2) Could this project be implemented by an existing (other) token, or there are economic reasons to create a walled garden to promote or to protect this economy?
- Non-profit or For-profit — While it is totally fine that a Blockchain project is either a Non-profit or For-profit, it would be wise to take this into considerations through your analysis process. Non-profit projects are typically also open-source, community-driven and are attempting to solve a general problem, typically in the form of network, protocol or system and apparatus, which are the underling building blocks to other solutions. For-profit projects, are designed to solve more concrete problems, to close a gap in the crypto-world or bridging between the Crypto-world and real-life needs.
- ICO Tactics — Check a growing list of indicators will give you a good understanding of how this token is going to be issued (mined or minted) and factors affecting the overall benefits of such investment. Is there a cap on the total supply (maximum number of tokens issued), are all tokens going to be created during the ICO (pre-sale and sale phases), is there some minimum funds required to be raised for this project to fly? Is there a cap on the total amount that can be contributed or invested by a single user (to avoid the problem of centralization)?
- Security Tokens — This is a very big topic that I probably will write more about on in the future. But key considerations are: Ask yourself what the means this project uses to comply with the community, self-regulated guidelines or any formal regulatory authority that are relevant to your jurisdiction. Each country has its own regulatory framework, but as a rule of thumb, you should be an “Accredited Investor” (E.g.: Regulation D rule 501 defined by the US SEC here), the security token’s offer should be private and should disclose any known risks to investors. There are exemptions, where project may accept investment from other type of investors, which is also different from one country to another.
As time goes, we will discover many valid projects that are creating valuable economies. Many of these projects, like in any species in evolution some will survive and succeed, and some will die with all the money that was invested in them. One thing is clearly seen now; the industry is maturing, standards are raised everyday, and we will see more regulated projects and more security tokens that will disrupt and transform anything we know about the financial, banking and insurance industries.
Fintech is a growing vertical, and although it has gained a lot of traction and investment funds in recent years, and still does, we are still at the beginning. There is a lot of room for new disruptive software solutions, financial instruments and economies to be built. This all will make our lives easier, with access to equal opportunities and helps communities to invest in their lives and their community.
Disclosure: I’m an Entrepreneur and Investor, Blockchain technologist, crypto enthusiastic, mentor and an adviser. I’m working on creating financial instruments and crypto funds for both the Crypto and Fiat (Not the car maker :-) ) Investors.