You plan to invest in an ICO? Here is what you should look at

You recently heard about crypto and are planning your first ICO investment? However, you feel overwhelmed by the sheer amount of ICOs and their flashy marketing? Here are the most important criteria and hard facts to evaluate when investing in an ICO.

Technology

To get an idea of ​​the technological scope of an ICO, start by reading its white paper (or the more technical yellow paper). The white paper is usually prominently placed on the website of the ICO and is generally the core of the project. Either on the website or in the white paper, you should also find more information about the tech stack:

Which decentralised infrastructure does the project want to use?

Which programming language is used?

Also, an ICO should have a precise tech roadmap that answers questions like:

Is there already an MVP or an alpha version?

If not: by when will the MVP be finished?

For investors familiar with code, most of the ICOs provide their source code on a public platform like GitHub.

Business Model & Token Design

As with any other investment, it is essential to analyse the business model behind the ICO:

How does the company plan to make money in the future?

How does the team plan to invest the funds raised through the ICO?

Closely related to questions about the business model are questions concerning token design:

Is the token an integral part of the product to be created by the ICO?

Is it an Equity Token or a Utility Token?

Which rights are granted to investors, for example, with regard to governance mechanisms?

For the future adoption of the token, it is also important whether the token will be listed and traded on exchanges and supported by wallet providers. In general, cooperation with leading players in the crypto ecosystem is a plus.

Governance & Team

Who is behind the ICO? A close look at the team is essential for every ICO investment. After all, keep in mind that the success or failure of the ICO, and therefore of your own investment, essentially depends on whether or not the project team achieves its ambitious goals. A review of the LinkedIn profiles and a background check of the leading minds is worthwhile for a solid assessment of the team.

What professional experience do they have?

What have they achieved in their previous positions?

Are the skills and backgrounds of the founding team complementary?

In addition to the leadership team, most ICOs also feature a number of advisors on their website to help boost the ICO’s reputation and highlight its experience. But beware: most advisors merely have a marketing function rather than a tangible operational role in the project. Do not be blinded by big names.

Market & Competitors

Every ICO has big plans — but is there really a market for the service or product the ICO wants to offer? When assessing the market and competitive landscape, it is important not to get blinded by flowery marketing promises. Let the numbers speak for themselves.

How big is the market where the ICO wants to operate with its solutions?

Are there already crypto competitors offering similar solutions, or does the ICO have a first-mover advantage?

Which incumbents have dominated the market so far?

Does the ICO have a meaningful and clear go-to-market strategy?

Legal Setup

What are the legal structure and the business setup of the ICO?

Do they support the long-term vision of the project, and, most important, safeguard the investments of investors?

Does the ICO have a clear picture regarding potential regulatory obstacles and the necessary foundation to act with integrity and keep the project running supported by a solid contingency planning?

Does the ICO meet current (local) regulatory compliance requirements?

Regulatory compliance highlights operational professionalism. This includes for example KYC/AML procedures, clearance certificates, or an investment prospectus.

Community & Media Coverage

What resonance does the ICO evoke? A good indicator is the media coverage of an ICO.

Do relevant crypto media sources report on the ICO? However, it is important to make sure that the reporting is not paid media, but rather earned media weighted according to journalistic criteria. Many ICOs rely on paid sponsored posts — although this is not objectionable, this sponsored content is no indication of media interest.

It is also interesting to examine the website traffic of the ICO. Both the absolute numbers and the growth rates can provide information about community interest, especially when compared with the website traffic of competitors.

The different social networks (e.g. Facebook, Slack, Telegram) provide an indication of how the team interacts with the community and should therefore be analysed as well.

Finally, monitoring relevant forums (e.g. Reddit, Steemit, Bitcointalk) will help you get a better understanding of community sentiment towards the ICO.

Summary

Due diligence is extremely time-consuming and often too time-consuming for a single investor. But those who invest their money need reliable and independent information. Unfortunately, many of today’s ICO rating agencies are essentially centralised and opaque. Consequently, in order to best protect investors and further strengthen the crypto ecosystem on the whole, transparent and appropriately decentralised ICO ratings are urgently needed.