Evaluating ICOs or token sales as investment opportunities is a delicate process. There are several variables that come into play. The industry is young, and the process of raising funds through an Initial Coin Offering is a even younger. The market environment is changing everyday, and it can be difficult to determine which projects are legitimate, which are scams, and of the legitimate: which will be successful. Evaluating these projects is also my job.
Note: I use ICO and token sale interchangeably here, I’m referring to the same thing. I also refer to cryptocurrencies as: coins, tokens, and projects.
I’m a partner in an token sale/blockchain project accelerator called if you want to learn more about technical analysis.
It’s extremely important that founders make themselves available to the community, it may seem silly, but to the people in an ICO telegram, the founders are like celebrities. If they don’t understand how valuable showing face can be for their community they might be missing the bigger picture. No task should be too small for a founder to get their hands dirty, and no telegram message is too silly to not warrant a response.
The second places I look to judge the strength an an ICO’s community are Reddit and BitcoinTalk. I really like Reddit as a barometer for the strength of a community because it’s extremely difficult to manipulate or “growth hack” Reddit.
ICO’s can launch bounty campaigns and pay users in their token to retweet on Twitter, like on Facebook, clap for Medium articles, etc — but Reddit moderators are so cutthroat that if someone on Reddit finds out you’re paying for up-votes, you’re going to get called out, and its going to get ugly.
Having strong strategic advisors are key for any business. With blockchain companies, I’d argue it’s even more important. With the market being highly sentiment driven, having strong advisors can sometimes make or break a project. Unfortunately, a byproduct of the sentiment-centric market, is the fact that having an advisor with vast experience isn’t always as valuable as having an advisor with vast social reach.
While getting an influencer from Crypto Twitter can increase chances of a successful raise, they don’t necessarily increase the probability that the business will have longevity.
I write this section with a bit of hesitance, like I said, I believe strategic and experienced advisors bring value and longevity — but I also believe that getting over the first roadblock is pivotal for ICO’s. That first roadblock is a successful ICO, and having some influencers on the board of advisors definitely helps get over that roadblock.
My only caveat to this is, if having strong influencers as advisors is one of the reasons your contributing to an ICO, make sure the influencers don’t sell their name to every project that comes across their plate. There are plenty of influencers who are also blockchain experts out there — while they actually have to be interested in your project to take part, companies shouldn’t be working with people who don’t share their vision anyways.
The best additions to an advisory board are founders from other successful cryptocurrencies, c-suite level members of a potential partner company, someone on the team of a popular exchange, rockstar developers, and anyone who can calm the
Roadmaps can be extremely revealing. Especially if the company has already passed some of its milestones. Pay very close attention to an ICOs roadmap as a token sale progresses, check back on it to see if they’re changing it to give themselves more time.
Being able to hit the milestones you set for yourself as a company founder or development team is arguably one of the most important abilities a startup team can have. If you can’t execute after all, what can you do? Blockchain is filled with idea men and women, hence the ICO boom of 2017, and the resounding silence we hear from most of the companies that raised money in that time frame.
If a project can’t hit the milestones on their roadmap, it’s an instant no-go for me personally.
Check out the company’s GitHub and see if they’re actively updating their codebase. Most projects are extremely transparent (if they aren’t that’s another red flag).
Use Cases/Market Opportunity
How large is the demographic of people this company is offering their product or service to?
Does the amount they are raising seem equitable with the size of the market opportunity? Tackling a larger demographic can require more funding: if an ICO is asking for 50 million to create a dating site for potato peelers in Idaho between the ages of 18–24, it might give me pause about the level-headedness of the startup team.
Shockingly, something I see far too often is ICO’s that don’t have a sustainable business model. If a company has a business model that can’t sustain their project with consistent revenues, what are they going to do when their ICO raise runs out? If there isn’t a business model clearly outlined, that says to me, either:
a) “We don’t know how we’re going to make money but we’ll figure it out after you give us all of yours!”
b) “We don’t really care if this succeeds in the long run, we just want to build it, launch it, and abandon the project”
It also shows a huge lack of foresight. How can any business function without revenue?
Something to keep in mind here is that revenue streams aren’t always easy to identify if you’re coming from a traditional business background. I’d argue that the mining fees Bitcoin pays out to miners in its network are revenue that sustain the business. I’d also argue that Ethereum network fees (Gas is used to facilitate transactions) is the revenue model. It also helps that Ethereum built a network that other cryptocurrencies can build on top of- increasing the value of the founders holdings every time a new project launches.
Long story short, when I say future revenue, I just mean: is there going to be capital generated to sustain the ecosystem and increase the value of the project in the long run? Are all of people required to interact with the platform/product/service properly incentivized to do so, does this aid the longevity of the project?
Soft Cap vs Hard Cap
In initial coin offerings and token sales, a soft cap is the minimum amount of capital needed to be raised in order for the company to launch, and the hard cap is the maximum amount of capital that can be raised. If a company hits their soft cap, they don’t have to return any of the money contributed.
If a company has a soft cap of 5 million, and a hard cap of 10 million, and they raise 4 million, they have to return all of the investments to the token contributors. If they pass 5 million they get to keep it.
I mention this as an item to pay attention to because the gap between soft and hard cap is sometimes surprisingly large. If a company sets their soft cap at 1 million for example, and their hard cap at 50 million — something smells a little fishy.
Don’t get me wrong, there are plenty of amazing projects that have had large gaps between their soft and hard caps, but they better have a damn good reason. Some companies claim that the additional money beyond the soft cap is how much they’d need to grow at an accelerated rate and outperform their competitors. Sometimes a large amount of infrastructure needs to be built, and they can either do so with profits they generate from their running business, or from hitting their hard cap.
What kind of press attention have they been able to garner? Again, the cryptocurrency and cryptoasset market is extremely sentiment driven — the media has a lot of power here. If a founding team is able to get significant press coverage in large media outlets, that can bring unparalleled results when compared to other industries. An article in a strong publication might just be another accolade for a traditional business, but when conducting an ICO, the same publication can translate to millions of dollars in additional capital raised.
Post ICO Valuations
If a company you’re looking at as a potential investment has already launched, check out my Complete Beginners Guide to Investing in Cryptocurrency, or the 10 Crypto Commandments to get a better grasp on how the data avilable post-ICO can be used to determine investment strategy, entry/exit points, and risk management.
The most common mistake I see traders and investors making is not performing enough due diligence. Reading tweets from your favorite crypto influencers doesn’t count as conducting research.
Don’t take other peoples’ opinions on coins or tokens you want to invest in: take their opinions into consideration, but come to your own conclusions based on your own research.
If you’re launching a token sale and need some assistance, stop by BlockchainWarehouse and fill out an application. We help companies with marketing, development, finding private and accredited contributors, provide a token sale platform, provide funding to get your project off the ground, and help structure strategic partnerships/fill the gaps in your founding team.
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