ICO refers to Initial Coin Offer – a cryptocurrency used generally by start-up companies to attract capital and backers. These currencies afford investors more than just a percentage of ROI (return on investment) – they also usually come with additional enticements or a share in the profits.
With so many startups, it’s an exciting time to be a cryptocurrency investor. However, like all start-ups, these ICO offerings vary in terms of risk. There are a few things to keep in mind when choosing a good ICO. Much of the information you’ll need to make your decision should be readily available on the project’s website (and if it’s not, well, that’s not a good sign).
The White Paper
This document combines a marketing plan with an explanatory thesis – you will find the company’s goals, philosophy, and the consumer needs that their product or service will address. The company will present their case to persuade investors and show a logical form of progression from concept to conclusion. Language should be clean and concise, without excess jargon or obfuscation.
The white paper contains details about the project’s structure. There should be a market analysis and estimated costs for each stage. Look for technical details, and don’t be afraid to consult an outside source for clarification or accuracy. Where needed, examples of the code or links will be provided, as well. Despite its nature to persuade investors, a sound white paper should also include risks involved in the startup.
The Project Team
Once you’ve familiarized yourself with the concept of the start-up, your next step is to see who will be executing it. The website should have the names and a brief professional bio of the people involved in the project. Look for their experience in the field, as well as successfully completed projects.
Don’t hesitate to make some brief checks about the reputation and work ethic of the team. Investing your money in a startup ICO is just like hiring a candidate for a job. You want to check the references and reputation of the team before trusting them with your investment.
This part of the website will delineate where the financing will come from. There should be a list of what the capital will be spent on and a budget. Compare the roadmap to the white paper – do these objectives fall in line with the stated goals? Are the stages achievable within the stated budget and timeframe? If you aren’t sure whether the roadmap is achievable, don’t hesitate to ask for an outside opinion.
Once you’ve decided to invest, take a look at what the ICO tokens will offer you. For example, some token holders will receive a share of the company’s profits and a discount on goods or services. Other projects simply buy the tokens back from the investors, at a premium. Pay attention to projected inflation – the tokens shouldn’t lose value. Finally, compare the amount of tokens distributed between the founders and the shareholders. Typically, 70%-80% of the tokens are issued to investors, and the rest remain with the startup team.
Deciding to invest in ICO is the same as any other investment. Do your homework – evaluate the project’s potential for profit, as well as the length of time your investment will take to pay off. Check the references of the team building the concept, and if needed, have your investment strategy reviewed by a financial advisor.