Basic guidelines to investing in an ICO
Do’s and don’ts when joining an ICO.
A new breed of fundraising has been stealing the spotlight. Initial coin offerings (more commonly known as “ICO’s”) were borne out of the rise of cryptocurrency and the need to jumpstart blockchain projects. Offered in large doses of sales pitches accompanied with volumes of “whitepaper” detailing the mechanics of these tokens and market opportunities yet to be served, ICO’s have risen sharply in popularity and in use.
Billions of dollars have been raised since 2017 for hundreds of ICO’s all over the world in an amount of time shorter than it would have taken the same companies to go through conventional routes to raise money: Initial Public Offering (IPO), private equity, bank loans, etc. A general lack of consensus in ICO valuation methods has created a huge possibility of upsides for an investor with an equal amount of risk. Nevertheless, there are still ways to invest in a good ICO and avoid falling prey to the bad ones.
DO’s:
The difference between regular fundraising via IPOs and similar methods and ICO’s is the working product. Most ICO’s do not have working products yet, but have outlined plans and prospects of developing these platforms in their whitepaper roadmaps. As such, an ICO’s basis for future business performance and growth will most likely depend on the company’s vision, an experienced team, and a solid roster of investors and advisors to guide the team throughout the development phase.
Make sure to do due diligence on the team, its investors, and advisors. Check their LinkedIn pages and for any relevant mentions online to help you gain better confidence in their expertise or previous work. A team’s track record in performing well in past projects is a good indicator for follow-through in succeeding endeavors.
Read the whitepaper thoroughly. The whitepaper will likely outline the company’s vision, market opportunities, and the token’s use cases. Check if the tokenomics make sense in the geography where the tokens are intended to be circulated.
If you have an opportunity to attend meet-ups and conferences, GO! The best place to learn about the cryptocurrency space is to engage in discussions with a variety of people who are generally interested. There will be skeptics and optimists, and the healthy rally of discussion between both will widen your understanding of both sides of the cryptocurrency coin.
DON’TS:
Having said that doing an ICO is the nouveau way to fund-raise for blockchain projects, most of these ICO’s will have elaborate marketing efforts to attract investors from all over the world. Investors who may find less opportunities to discern a good ICO from a scam might invest based on popularity, instead. Don’t fall into this trap! Just because an ICO is popular now, it doesn’t mean it may be the best investment for you.
Previously, we mentioned reading the whitepaper from start to finish. While a portion of it may be written in fine print, try not to skip it. Again, ICO’s are generally unregulated. As a potential investor, it will be good practice to know the extent of your liabilities with an ICO investment. Remember, ICO’s may yield high rewards if all goes well, but the potentially high returns come with very high risks!
BEFORE YOU BUY THOSE TOKENS…
Like any other investment decision, exhaust all means to educate yourself before you get your feet wet. As ICO’s open a new era of raising capital, a shattering of old financial evaluation processes has to be done. This brings us to another thought process in business model evaluation — how do you assess opportunities with limited financial information?
Let’s leave that up for another topic of discussion. For now, go on and do your homework!
For more info, visit www.xon.io. Join the community on Telegram.
