Initial project funding is not a new thing. It has been present for a long time now, but the form drastically changed with “new economy” of blockchain era. Classical ways of funding assumed ownership in the new company. “Angel investors” bought shares in startups and after a few years, they sold those shares with profit if the company succeeded. If the project failed, then they lost their investment.

What is different in “new economy”?

If you look closer, nothing really. All basic things remained the same, except that contributors in ICO do not buy shares and do not participate in profit. If they would, that would be a so called ‘security’ and that kind of ICO would be illegal.

Does that mean that ICO contributors do not have any profit resulted from company’s success?

Surely, that is true as well as false — depends on the way you look at it. ICO contributors do not profit from shares or from operational profit, but in case of a successful project, tokens will value more and ICO contributors will be able to trade them better, bringing value to them. In the end, the same thing is important for all types of initial crowdfunding: take time and choose good projects with great potential. Angel investment teams have professional evaluators, doing due diligence, and choosing good projects out of many. When you are deciding to participate in ICO, you have to be such professional yourself.

I personally see those types of ICOs out there:

type 1 — Projects, where it’s hard to recognize, what is their purpose or “removing intermediaries” — better stay away from such

type 2- projects, searching for ICO financing for some kind of building or a factory — that usually has nothing to do with blockchain and usually they offer tokens for buying such real-estate — stay away as this is clear security!

type 3 — projects, offering huge guaranteed profits, profit sharing or shares in the company — also scam (and security), sometimes also Ponzi. It’s better to stay away!

type 4 — projects, which have good problem definition and a real market for that problem-solving. Usually something new and not yet existing. Tokens are used as utility tokens and without them, the solution would not be possible. Check the team and token flow, but that are good projects, worth considering.

type 5 — new infrastructure projects — be careful, but if the team is capable and if they are solving a real problem with current blockchains (for example identity, personal data, etc…), those are good projects. Also worth considering.

Whatever you do, understanding the idea and the market for the solution is something you should start with when approaching ICO opportunity. Ask the questions, do your research and be confident, when you do the final step. The reward can be high if you do your job well.

Bojan Oremuz is CEO of TrendNET and founder of EMMARES.IO project.