Know Before You Go — The Beginners Guide to Investing in an ICO
When the wave of cryptocurrency hit the world last year, it also brought along with itself a completely new investment option — ICOs. Being a new concept, there are uncertainties that revolve around the concept of ICOs and investing in them. This leads to a number of beginners falling for the wrong ICOs and misjudging them, hence, taking an unexpected loss or being scammed. This article is focused on putting light upon the true concept of ICOs and how beginners can search for and evaluate the best ICOs to invest in.
So, let’s answer your first question.
What is an ICO and How do they Differ from IPOs?
Many people believe that ICOs are the same as IPO which is far from the truth. The only similarity between IPOs and ICOs is that they both present the public with a great opportunity to invest in a certain business.
So, what pulls the differentiating line between the two? The answer lies in the time when people can invest in them. In today’s time, companies usually take a period of around 10 years before filing for an IPO. And it is then when normal investors can buy the stock of those company. On the contrary, ICOs are early-stage investment opportunities for all investors. In many cases, ICOs are even conducted for mere ideas scripted on a whitepaper by a dedicated team and a set of advisors.
The reason that makes ICOs more profitable than IPOs is that when you invest in a company at an early stage, you get to buy the tokens/coins (or stock in case of IPOs) of a company at a very cheap rate. Companies that file for IPOs only let venture capitalists and angel investors invest in them at an initial stage; meaning, normal investors cannot enjoy the perks of buying the stock of a big company at a cheap price. ICO, most often, is divided into two parts, pre-ICO (private sale) and public sales which occur one after the another.
The one thing that scares investors away from investing in ICOs is the fact that it needs a lot of homework — evaluating the company/startup idea on one’s own or through sources provided on the Internet. However, to find credible details to evaluate an ICO is an easy task now; all you need to know is the places where to look for.
What Makes Investing in ICOs so Special?
As already mentioned, when you decide to invest in an ICO, you get to buy the tokens/coins of a particular company at the cheapest price. This refers that there is a lot of room for the growth of the price of the token and hence, the increase in the capital that you invest in the ICO. Startups, during the ICO, discount the cost of their tokens by as much as 50% which means that when those tokens get listed on an exchange, their price would already be close to doubled. This automatically makes your invested capital shoot up by as much as 200%.
If you know how to judge ICOs and filter the best ones, tell me, why would you or anyone for that matter miss such a profitable investment opportunity?
How to Filter the Big Fish?
To invest in potentially profitable ICOs, you first need to know where to look for them. Here’s a short list of websites you’d want to visit to always stay updated of ongoing and upcoming ICOs:
There are more websites where you can find a list of ICOs to invest in but these are the most conventional sources for the purpose.
Now that you know where to look for, it’s time to tell you how you need to go about your ICO hunting spree?
A whitepaper is a long-form document that is usually divided into 6 major parts; current industry problem, proposed solution, the technology to be used, the roadmap of the company, the team behind the idea, the token, its use and its economics.
Once you know of the problem that the company aims to solve, you can do your further research and circle down to a conclusion as to what chances are there for the adoption of their proposed solution. If you find the solution good enough, it’s a positive start for your research.
Next, you need to conduct a thorough research on the team that backs up the project. The best way to go about it is to scan through the LinkedIn profiles of the main building blocks of the projects. LinkedIn profiles, most often than not reflect a clear idea of how much experience the team has in the field in which its project is based. No experience would probably imply the incapability of the team members to make that project a success.
One more important aspect that most investors look over is the purpose that the company’s token is intended to serve. ICOs are certainly useless if a company doesn’t define the exact purpose that the token will serve. A token with no or poor justification of its use is a clear no-go.
Present Competition in the Market
It can be said without a doubt that no other social media platform can compete Facebook if they do not present something more logical, useful and unique. Similarly, investing in an ICO that talks of solving a problem which already has a lot of attention and other, more settled companies are targeting it, wouldn’t prove to be a good choice in most cases.
Precisely put, look for ICOs that intend to practice a unique solution that either target a problem that doesn’t have as much attention as it deserves or makes the current system of a particular industry more expeditious.
Advisors and Partners
If a project has a group of advisors who have proved experience in raising million and billion dollar companies, it is a green light for you. Also, projects that have partnered with reputed companies indicate that they have a great potential, otherwise the partnership would have been pretty difficult.
Private sales are meant for venture capitalists and angel investors. If you find that big names are associated with the private sale of a project, its ICO has a maximum probability of attaining good results.
Response on Discussion Forums
Checking out the response of the community of interested people on discussion forums such as Reddit, BitcoinTalk, Coincompare can also add to the information that you already possess of the ICO. It will also help you gain different perspectives of the ICO which will enable you to judge the ICO from different points of view. This, of course, will help you strengthen your stance on a particular ICO.
Social Media Presence
When you start with your process of looking for ICOs, do study the presence of the project on social media platforms. A good number of followers on Facebook and YouTube, big groups on Telegram, a website with a reasonably high number of viewers are a plus for the ICO. Poorly marketed projects on social media and a negligible following speak volumes about the ICO and you must try keeping away from them — unless you find some other above-mentioned factors strongly make up for this.
Use of Blockchain
Does the project actually need the blockchain? Once you’ve finished analyzing everything, put that question up and see if the project does make reasonable use of the blockchain or has it just tailed itself to the growing technology in order to raise funds through an ICO?
Few Final Words
It goes without saying that no amount of research can ever prove enough to give you 100% surety for a project’s success. So, when you invest in an ICO, you always take on some risk but, being an investor, you must know how to manage your risk and return. Also, the advent of ICOs into the major market has also created a lot of room for scams. It is adviced that you take all necessary measures to make sure that you do not invest in scams. It’s sure that you won’t fall in the trap if you play by the rules, do not become greedy by looking at projects promising unrealistic returns, and keep a check of all the points mentioned in this article.
Stay safe, stay invested in the best ICOs.
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