Fundraising

Want to Invest in an ICO in 2018? Here's All You Need to Know

ICOs started out as a way for startups to raise funds without employing traditional methods of funding through VCs
Want to Invest in an ICO in 2018? Here's All You Need to Know
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Chief Operating Officer, Panaesha Capital
5 min read
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An ICO or an Initial Coin Offering is a fundraising means in which a company attracts investors looking for the next big crypto score by releasing its own digital currency in exchange for a crypto-coin or fiat currency. It is a form of crowdfunding activity in which firms issue digital “coins” or “tokens” in return for a payment. Simply put, an ICO is very similar to an IPO and the only difference is that instead of selling shares in the company, startups are using ICOs to sell crypto-coins in exchange for money.

Understanding How ICOs Have Come a Full Circle

ICOs started out as a way for startups to raise funds without employing traditional methods of funding through VCs. In the pre-ICO world, a startup was compelled to give up significant ownership rights and decision-making powers in return for funding. With the rise of ICOs, startups could raise money by appealing directly to the public: an audience of prospective users and speculative token buyers. It all started with Seattle-based software engineer, J.R. Willet introducing the ICO concept in a whitepaper on a popular cryptocurrency forum for the first time where he ended up launching an ICO for Mastercoin in 2013. Five years later, the world saw the rise of the Ethereum ICO which raised $2 billion over a small period of only nine months, thereby proving the worth and true potential of an ICO model.

5 Things to Know Before Investing in an ICO in 2018 

Enlisting a few simple steps to follow before investing in an ICO in 2018:

  • Study the ICO’s whitepaper and evaluate the use cases: Before selecting an ICO to invest in, prospective investors should read the whitepaper and evaluate the projects’ feasibility and decide if the platform has present and future real-world use.

  • Check the project’s MVP (minimum viable product) readiness: Those interested should then examine if the project has MVP readiness and analyze if the product has features that solves any current problems that exist in the world.

  • Compare the ICO to competitors: A thorough analysis of existing competitors to gauge if there are similar products or solutions in the current market. If so, identify the salient features of this project that are likely to beat out the competition that exists.

  • Weigh all the pros and cons: Never invest without thoroughly studying the product and evaluating the immediate and future needs for that product.

Review the Project’s Team

  • Study the company’s website and team: The website is a great place to ‘meet’ the team. Reading the bios of the core team can help an investor understand their value; the golden rule here is ‘A good team = good product’. It is imperative to understand the experience the team brings to the product and the understanding that it has on the platform.  

  • Follow the team’s social media profiles: Typically, individuals passionate about a product or project will share their views on their own product, other projects and the industry.

Look Out for Project Announcements on Various Forums

  • Keep an eye out for ICO announcements: ICO companies announce launches on alternate media channels, like cryptocurrency forums and Telegram, in addition to social media. There are several websites that list upcoming ICO’s and rate them.

  • Crypto investor sentiment: Crypto investors freely share experiences of their own investments and recommend upcoming ICOs. Potential Investors should have a careful look at these crypto trends and products by following the discussion threads on crypto investment focused discussion platforms. It is best advised to ideally choose platforms that facilitate open discussions about projects with experienced crypto investors.  

  • Track the plan: It is quintessential to check if the company has a rollout date planned. The idea here is to gauge if they have a detailed plan and information about how that plan will be executed. The more detailed the roadmap for the project, the safer the investment as without timelines and a roadmap, a project could crumble.  

  • Fund utilization: Delve into seed funding specifics which includes information on the investors who are supporting the company’s platform and speed up launch dates (read as faster returns for investment). Most ICO projects reserve many funds to build their technology; this appropriation could range between 30 - 60% of funds received. Some portion of the funds is dedicated to R&D and cyber security, to safeguard the platform.  

Track Experts Related to the Project

  • Follow experts in the blockchain and ICO industry: Following experts will help in making an informed investment decision. These experts disseminate content on social media that provide relevant insights, ensuring that a potential investor can independently assess the project’s viability.

Decode the Project’s Token Economics

  • Amount of coins in circulation: The more tokens available for distribution, the better the network. Before investing, research if other projects in the segment are operating on a minable platform or not. If the project in question is operating counter-intuitive to the market, take some time to understand why.

  • Evaluate the market-model of token supply: Investors should compare token distribution and fund allocation of the project to other successful projects. The allocation should not be an extreme deviation from industry norms.

  • Find out on who has control of the funds: One should scrutinize if the spending discretion lies with a sole authority or is it distributed within the team or advisory board. If a team is making decisions, the token distribution and fund allocation will mostly likely be fair.

  • Check if tokens are secured in a multi-signature technology format: Projects that are secure will require multiple levels of verification before one can invest and will provide multiple layers of verification within the platform to ensure the security of the platform.

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