Prior to the introduction of smart contracts on the blockchain network and Initial coin offerings, early stages tech companies had to rely on investors, initial public offerings, and themselves to fund their projects.
Initial Coin Offerings is a form of crowdfunding, where companies issue their own tokens for other people to buy, in order for them to raise money.
Many see ICOs as a hybrid between Initial Public Offerings and Kickstarter projects. As an investor you can get the advantages from both worlds, and monetary rewards in the long run. But ICOs are also are a risky investment venture, so there are a couple of aspects you must be aware of before putting your capital into such projects.
Read the white paper
White papers are basically what the company is pitching to potential investors. They have to contain the company’s vision, how its services work, features, developers and other relevant information. The white paper has to be well-written, as the quality of the document can either make or break a company. As a potential investor, you have to read thoroughly the white paper and figure out if the team behind it is serious and if their project is solid. Also make sure to fact check the details and stats in the document.
Learn more about the developers
Research is an essential skill for ICO investors. This means you have to do some reading about the team behind the project. While most companies that launch their ICO are newcomers to the market, their team members may have been involved in other similar projects in the past.
It is recommended that you do a background check on each team member. See how much experience they have in their field, what other projects were they involved in, if those projects failed or not and so on.
If the ICO is held by an already established company, invest more time into learning about the company and the other products and services it offers.
If a start-up doesn’t list its team members or other important information, they may be scams, as there is no one that can be publicly held accountable for the outcome of the project and ICO.
Purchase tokens with long-term use in mind
Tokens that have no other use except for raising money may not be worth it. ICOs that are well conducted usually offer investors more ways in which they can use their tokens, while those that are just holding an ICO just for raising money will not. With this in mind, consider the long-term value and potential use for the tokens you will be purchasing. If you won’t be able to sell the tokens for a profit, at least make sure that you can access the company’s services.
Read other opinions
Most ICO marketing techniques involve using various cryptocurrency forums, social media platforms such as Facebook, Instagram, Reddit and the likes. Read all the posted presentations, and see what other people have posted on the matter. There may be people that have more experience and knowledge on the matter and they may be better at spotting the cracks in the project. Or they can give you some valuable advice. But don’t make your decision based solely on other people’s opinion though.
See if their funds transparent
When investing in an ICO, your money will be used in some way to help launch that project. A wise investment would be to look for companies that are transparent about how their funds will be put to use. This means they have to share the total number of tokens to be released, how many will be sold in pre-sale and coin offering stages and how much of the funds will go to the team and the development of the project.
Check the future plans of the company
Companies that have available a well-developed plan for future are always a better option. You want to know when the project began and in what stages has the development process entered. You will also want to know what the company’s plans are after the ICO. A company that has panned out further investments and ideas will have a better chance at long-term success, and their token value may increase.
Keep in mind these tips when searching for an ICO to invest in, and look out for any red flags or scams. With the increasing number of ICOs today, it can be very tough finding the one with the most potential.