BITSME's Fundamentals for picking a winning ICO
In a time not too long ago in an era before the world started hearing about “Blockchain” “Cryptocurrency” and “HODL”, entrepreneurs who wanted to raise capital for their next venture could only depend on convincing VC's, angel investors, friends and family or even using their own personal capital. Since the expansion of Blockchain technology and its movement towards the mainstream, a new powerful way for rapidly raising large amounts of capital has emerged: Initial Coin Offering better known for its abbreviation - ICO.
For those of you out there who aren’t familiar with the concept, an ICO is a large scale form of crowdfunding; firms create a Coin or Token which members of the public can purchase in order to raise capital for their ventures. In most instances, these currencies offer investors more than just the typical percentage of ROI (return on investment) having the digital unit serving as a utility for different in-app functionalities and occasionally additional perks or even a slice of the profits.
Before moving on to our personal fundamentals for picking a winning ICO, it is important to note that investing your capital comes with risks. Before investing any amount it is essential to conduct research of your chosen venture, perform due diligence checks, evaluate the project’s potential and most important only invest money that you are willing to lose.
The best place to start the process will be on one of the many ICO listing websites such as Coinschedule, ICObench and others. Once there take a look at the upcoming ICO’s and select a few projects that you find interesting for further examination. As these sites revenues are derived from projects listings, it will not hurt to ignore the scoring granted for each project as they are probably sponsored and in most cases do not indicate the true quality of the project. Now that we are all set, get ready to conduct some research!
- Project maturity, site and general first impression
“You never get a second chance to make a first impression”
Will Rogers
A project website is a great place to see the state of readiness a certain project holds. An ICO campaign is like an obstacle marathon, consisting of many sub-processes and tasks which depend on completing preceding tasks. The ability to reflect the idea, materials, and status of the project in a clean simple way testifies to the readiness of the project to set off.
Visit your chosen venture’s website. How does it look? The website is the face of the company and its project, it doesn’t need to be the best looking or best designed website, but it must have a professional layout and be easy to navigate. If the company hasn’t put any effort into making their website attractive to investors or "sticky" (looks too bland, difficult to navigate, no compelling information encouraging visitors to take action) that should be a cause for concern. A winning ICO will have a great website with an attention grabbing design, professional layout, videos, graphics, visuals and charts to better explain the more technical aspects of the project.
Here is an example how an ICO site should look like - iOlite.io
- Study the project's Whitepaper and Team
God is in the little details. Read the Whitepaper from beginning to the end, don’t skim it.
Reading through the entire whitepaper is a must as it contains every single piece of crucial information about the project: the vision, the need, the business model, who is working on the project, the company’s plans on how and when the project will be implemented, how the ICO is structured and how the raised funds will be allocated.
Whitepapers contain technical and complex elements, be sure to re-read to ensure you understand everything. What is the purpose of the coin? Is it genuinely “needed”? How essential is applying Blockchain technology to the project? Is there already a working product? Ask yourself those questions and many others about the projects you have chosen. An ICO means the creation of a whole new coin; in order for that coin to increase in value, you must be able to answer with confidence that there is a real market need for such product.
Just like in the "Old School" high-tech startup industry, at the end of the day investors are investing in people and not in the product itself. Even the best idea ever thought off will never be executed without a strong team of individuals behind it. Be sure to check the team and advisers lineups on the site. Don't stop at their titles and the short bio and make a thorough research regarding their past experience and achievement then ask yourself "are they up to the challenge?"
- Hard caps and token allocation
Checking the Hard cap (Max funds to be raised) and how the coins are distributed is very important. The Hard cap amount needs to be in line with the company’s roadmap and development goals. A winning ICO Hard cap should be somewhere in the range between having enough market cap to be appealing for exchanges listing and enough to cover all development costs and then some. If a project sets its Hard cap too low, sophisticated investors will stay out, set too high and the coin will face difficulties increasing in value which would damage the integrity of the coin.
There is no magic number for the Hard cap. All we can do is examine it with regards to the project's complexity, targets as appear in the Whitepaper and our common sense. For example, the difference between the Soft cap and Hard cap should be an amount that makes sense; setting a Soft cap of 2 million and Hard cap of 120 million doesn’t appear convincing, making potential investors question what will the project be doing with the excess money raised beyond its Soft cap.
- Hype Hype Hype
Being honest, when searching for the "next best ICO" all the other parameters are dwarfed by the hype levels a certain project has. To simplify the idea in the easiest way, a project with high levels of hype and demand around it will probably sell out quickly, leaving many buyers out without being able to buy the coins during the sale. Therefore, it is safe to assume that immediately upon getting listed in an exchange, those who are left behind will hurry to buy the coin on the secondary market, leading to bigger buying power resulting in a positive trend, higher value and positive returns for early investors.
When assessing project's hype level, ask yourself the following: Does the ICO seem popular? Does it have a large amount of public exposure? What is the size of its community? Is it vivid with constructive conversations or rather sleepy and tired? Are you hearing about it frequently and on multiple platforms? If yes, then that project is probably quite hyped.
‘Hype’ is another word for describing exposure and recognition. A good project will have both of those things. Hype is crucial for a successful project; it keeps the project the topic of conversation which generates more exposure, more exposure means more potential serious investors and increases the chances of mass adoption (the goal for all coins). Check out the projects social media presence, check on forums and message boards about the project. If there is an authentic discussion about the project on multiple platforms that is an excellent sign of an ICO that will go far.
- The special ingredient
In your search after the killer ICO always look for the special factor, the 'ace in the hole', that one thing that will make this ICO stand out above all the rest. There are many different facts which can really increase the potential success of the ICO, for example having a working product, possible regulatory compliance, having a representative from a major exchange on board as a partner, having influential individuals as a brand ambassador and many more.
Searching for the special ingredient might be a tricky task as it is quite subjective. While making your assessment on the matter, try to be balanced without letting your feelings and desire influence your judgment.
Conclusion
The ICO process is a fascinating and very complex operation. One that includes many parameters, sub processes and variables. Due to the abundance of ICOs these days, it is very difficult to make a healthy judgment about contributing to a certain ICO. Therefore we normally end up surrendering the All-mighty FOMO (fear of missing out) and taking part in projects our surrounding is telling us to without properly examining the project ourselves.
It is important to remember that these type of investments have very high risks attached and that we can never know with absolute certainty the nature of a certain project. All we can to do is do the best we can make the gamble a little wiser.