Are ICO’s with grand promotions safe to invest in?

Before understanding whether a well marketed and presented idea is better or not, let’s understand why do we need ICO’s in the first place?

Most, if not all business ideas require decent capital for kickstart, survival and scale.

The structure of economy is such that for raising any kind of capital, there is a lot of expenditure involved. For instance, there are numerous restrictions on start-ups to raise funds via debt. Even after lots of hustling, if a few manage to access debt, rate of interest is staggeringly high which makes it challenging for start-ups to survive the competitive business environment. On the other hand, private equity route is time taking, exhaustive, involves agent commissions. A good percentage of start-ups taking private equity route often find themselves locked in disputes with the investors over company vision and mission. This consumes ample amount of time in management discussions and leaves little room for planned implementation.

ICO is a better way to attract funds at seed stage without having to worry about repayment

ICO’s by nature are not regulated. So, any start-up with a decent website, good whitepaper and a team to show can run an ICO campaign aiming to raise millions without hesitation.
Most ICO’s can’t justify why do they require millions of dollars. So, high budget ICO’s having fancy hardcap’s where little is revealed about the business model is a red flag.

These ICO’s mostly target unsophisticated investors. These investors are lured by quick returns. Fear of missing opportunity (FOMO) makes them invest in crappy ICO’s. This exposes the investors to risk of losing the invested capital leaving alone the “big returns”
Legendary investor Mohnish Pabrai states, “Never buy a stock without doing your own research. I’d never buy a stock even if Warren Buffet recommended it to me without doing the homework.”

This rule applies to ICO investments as well. It does not matter how much the hardcap is, it does not matter how much the company is promoting its ICO, neither who is backing it. What matters is

What is the business idea for which funds are being raised?

More than the marketing budget, the team, experience or blockchain use, the business idea should have the potential to work in the real world.

Are promoters justifying the business model with the funds raised?

Using bold statements in promotion as to the quantum of funds raised should not be the criteria for choosing the ICO for investment. Also, big ticket ICOs with fund raising goals like raising a 100 million dollars should not be equated with success.

A good project should have an excellent idea, a good roadmap with defined vision and promoters having experience and domain expertise to deliver the project

Do the promoters have adequate domain knowledge?

Lack of Domain knowledge can lead the promoters to get distracted from the business vision among other drawbacks.

An idea without a proper business plan, roadmap or direction is risky. Even though it might have a bunch of intellectuals, Intelligence alone cannot guarantee success.
In order for idea to succeed, it is crucial that there’s persistence in execution.

What are the terms in which an ICO would not be listed in an exchange?

In worst case scenarios where the targeted milestones aren’t achieved, tokens should be listed or if they can’t be listed, the funds should be returned to the investors. This should be stated explicitly.

Backup plan in-case the hardcap is not achieved?

Whitepaper should explicitly mention what happens and how much company can deliver at each milestone. If softcap or hardcap isn’t achieved, how does the company plan to execute the idea with remaining funds and / or how do they plan to raise balance funds and what impact it shall have on existing token holders with time frame of achieving balance capital.

Is ICO offering extensive huge discounts for promotions?

Generally a good ICO should be self sufficient to garner attention from investors. ICO’s concentrating too much on bounty schemes and discounts generally strive harder to sell the idea to investors.

ICOs having star investors.

It is common human psychology to get attracted to issues which involve glamour. ICO’s having star investors to boost the general sentiment should be questioned.