Forget the Whitepaper: What ICO Investors Should Really Look For

There are now approximately 12 ICOs passing every day. So when one is choosing among them, it’s important to bear in mind that with so many companies wanting to make collections of funds, some will actually be a scam, others might have good intentions but prove unsuccessful, and some will have the chance to succeed.

-Pavel Salas, cryptocurrency trader, CEO, and CoinPlace adviser

As many a bleary-eyed ICO team emerges from the ashes of 2017’s year-long party (and investors wake up to find their wallets empty), a thin veil of remorse hangs delicately in the air. There’s more to ICO investing than meets the eye.

The insatiable demand created by a heady mix of FOMO marketing, constrained hard caps, and whitelists is starting to calm down.

Realization sets in that none of these quasi-legal ICO investing activities really tackled the most fundamental of issues. What’s really important to the investor? An appealing name and comfy bandwagon to jump on, or a project that will survive long term and yield positive returns?

The ICO Party Is Over

Oh, okay, it’s not that the party is over. It’s just that the lights are being turned on and the grownups are arriving. But that’s not necessarily a bad thing.

Graham Leach, Managing Director of Remediare, comments, “In 2018, regulators have started to pay attention to what might rightly be called a historical pattern of “pump and dump” or “bucketeering” in the ICO space. They are taking strong steps to signal to participants that such activity is not only socially undesirable, it may even be criminal.”

So, that suspicious character selling dubious packages outside the door? It’s time for him to go. The focus is shifting from the eye-catching wrapping to the goods inside the box. The quality of the opportunity being examined and the feasibility of its plan.

A Corporation’s Process

Jim Angleton is President of Aegis FinServ Corp, a company that operates both in the conventional banking space and the cryptocurrency area. AegisFS adheres to a long and complex process when it comes to underwriting an investment in blockchain entities. This includes making sure the company is R3 approved, can provide 12 months of actual bank statements, passes KYC, AML and Color of Money Stress Testing, and is 100% compliant as it relates to operations.

They also carry out a background check on each member of the team and verify the quality of the technology they use. It must enable the capture of immutable, trusted, and verifiable information based on digital cryptography, grade of encryption and update schedules.

Says Angleton, “As you can see, this is quite deep, and yet we always have investor remorse because the technology is so new, so sophisticated and regulation-prone, which all makes risk an element where decision-making is extremely difficult. We like the fact that Blockchain is diversified and the horizon is very bright. What makes us sleep less at night is worry over the ‘What-if’ situation.”

Shyam Kamadolli is Managing Partner of AVG Blockchain Fund, a company that specializes in investing in blockchain technology. When asked about their investing process, he says, “We almost always ask, ‘Would this project get funded if it was a traditional VC round being raised?’ If the answer is ‘Yes’ based on our fundamental analysis and diligence, we then get into the crypto elements: the tech stack, the tokenization, deal terms, etc.”  

Individual investors may not have the same tools on hand to carry out such complex due diligence. But you can simplify things by checking out the company’s credentials, verifying the existence of its team, and asking yourself whether the technology is real and how game-changing it really is.

Sometimes your gauge can really be your own instinct. If it sounds too good to be true, it probably is.

How Do You Know if a Company’s Going to be Successful?

“That’s not an easy answer,” Kamadolli admits. No one really knows which ICOs will go the distance and which ones will fall at the first fence. But taking some basic measures will certainly increase your chances of backing a winner.

Let’s be honest, though. Isn’t that part of the attraction to this adrenaline-filled digital money world, laden with surprises at every turn? It’s the spine-tingling uncertainty that keeps us coming back, not the knowledge that our savings are accumulating interest in a bank.