In basic terms, an ICO is a form of crowdfunding, where companies create tokens which the public can buy, in order to raise finance for their projects. You could refer to ICOs as a combination of Kickstarter-projects and Initial Public Offerings, as investors can get both advantages, but also monetary rewards in the long run. However, ICOs are considered high-risk and high-reward investment ventures, therefore there are a couple of aspects that you should keep in mind to safeguard against any loss of your capital.
Make sure that you read and fully understand the white paper
White papers are basically the company’s pitch to potential investors. Because of this, they have to be well-written and include all relevant information about the company’s vision, the problems that they wish to solve, how the services will work, features and benefits, development roadmap and more. In many cases, the quality and content of the white paper can either make or break a company, and it clearly shows whether the team is serious enough about their project. With this in mind, as a potential investor, you’ll have to double-read the white paper, and only consider an investment if you understand everything the white paper is telling you. Also, make sure to pay attention to details, as some companies have been known to 'hype' up the stats about the current state of the market. Really delve into the information, fact-finding is an essential skill for ICO investors.
Learn more about the team members
When evaluating an ICO, it's really necessary to do as much research as possible. This research effort also consists of reading and learning about the team behind the project. While most companies launching their ICO are new on the market, chances are that members of the team have been involved in similar projects in the past. It is recommended that you go ahead and search for each of the team members, as a form of background check. To qualify, team members need to showcase expertise in their niche of business. a level of trust needs to be established between the team and the investors.
In addition, some ICOs may be held by companies which are already established, and wish to further accelerate their capital income, in order to release new products and services. If this is the case, time should be invested into learning more about the company, and the other services and products being offered. Doing so will likely lead to a smarter investment decision with a higher payoff later down the road.
There may be cases when ICOs don’t even bother to list their team members, the positions they occupy within the company and their experience. This is an absolute red flag. If the company isn’t upfront about who is working for them and who is in charge of the project, why should you purchase tokens from them? Not only this, but start-ups who choose to hide important information like this may be scams, as no one is publicly assuming responsibility for the outcome of the project and the ICO.
Consider the long-term user case for the tokens that you are buying
Tokens which are being sold for the sole purpose of raising money and don’t offer investors any additional benefits apart from resale value may not be worth it. Well-conducted ICOs often allow investors to use these tokens as a way to purchase services from the company, whereas those who are only holding an ICO for raising money will not. Because of this, it’s recommended that you consider the long-term value and potential use of the tokens that you’ll be buying. After all, if the price doesn’t increase and you’re unable to trade the tokens for a profit, at least you want to be able to get access to the services being provided by the company. Please see our article about Security and Utility Tokens for a further distinction between tokens.
Read what other people are thinking and saying
ICOs often market themselves to various digital currency forums, but also on social media platforms such as Facebook, Instagram, Reddit and more. Use their marketing techniques to your advantage! Read all ICO presentations wherever they are posted, and make sure to keep a close eye on what other people think. They may have more experience than you and may be better at catching red flags and giving advice. Don’t base your entire investment decision on what other people think though.
Consider the roadmap and future plans
Companies with realistic and well-developed roadmaps that share their future plans are always a better choice. As an investor, you want to know when the project started and how far the development team has come. Additionally, you also want to know the future plans of the company following the ICO. If a company only wants to offer a certain service until the end of time, with no further investments and ideas planned out, then chances are their success will be short-lived. This is a bad sign for potential investors, as the token value increase potential remains limited.
Fund transparency
By investing into an ICO, you’re basically putting your money to work. Usually, the best ICO investments consist of companies which are transparent about how the funds will be used. This means that they need to share the total number of tokens to be released, how many will be sold during the pre-sale and the coin offer, what percentage will go to the team and any of their advisors, and how the funds raised will be used to bring the project to life in the future. Serious start-ups will often share all these details and state what percentage of the funds will go to marketing, employees, project development, future investments and more.
Good quality website, page, and image design
Websites represent the company’s face before potential clients and investors. With this in mind, we would recommend taking a close look at how the website is set up, what kind of images have been used, and whether the user interface is easy to navigate through. One would expect a high-quality site as the website will have an important role in the success of the company. A poorly designed website shows the company isn’t able to invest enough time and money into smart marketing, and page development. If this is the case, then chances are that they’ll follow the same trend once the ICO funds have been raised.
Conclusion
Based on everything that has been outlined so far, keeping these tips in mind will likely lead investors to make smarter decisions in which ICOs to invest in. Lastly, if your gut is telling you that something isn’t right, perhaps it would be a better choice to look for other companies to invest in. There are more than enough choices available on the market.
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