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Every investor needs to remember that participation in an ICO entails high profitability and high risks as well. Token distributions largely resembles traditional venture market, where the players expect startups to grow 30-40 times but regularly lose money in unsuccessful projects.
Companies rarely have a complete product at the ICO stage, as a rule it's just an idea, a technical solution (in whitepaper format), a visual prototype. They are still have a long way ahead - gathering a team and marketing their product to clients. At this development stage companies could have counted on the very first, seed round of venture
investments. This is the most risky investment stage on the venture market: on average a half of start-ups at ten such rounds brings nothing to an investor, 3-4 have some profitability and only 1-2 show a tenfold growth.
Thus, what ICOs are worth investing in? The investor should answer the following key question to select a correct project from the market variety: "Why will a particular token grow in price and what growth potential it has?".
Traditional financial assessment instruments will be of no help here due to a number of reasons. Firstly, the project has no indicators at this stage, so it's impossible to access its value. Secondly, a token is not a specific share in a project. It turns out that the exact numbers are determined only by the market supply and demand, which mainly depend on the investors' expectations.
Then how would you assess token price growth potential in real life? Analysis is what will help here. The project is split into specific key points, each of which is assessed separately. It helps to determine company strengths and weaknesses, development potential, and possible problems.
It is recommended to consider the following parameters in project analysis:
1. Market. It determines the project scale and development potential to a large extent. The perfect situation is as follows:
• A market with high development potential already having sufficient volume or a unique market;
• Low competition or its absence;
• Forecast that the project will take a significant market share.
2. Product. The value and potential of the idea itself can only be assessed subjectively. Attributes of a perfect product (as of ICO date) are:
• Unique idea, good blockchain usage, open-source;
• Solution to a relevant market problem;
• Technical part is well described in the whitepaper;
• The market is already ready for the product or will be ready within a couple of years;
• Problems of other blockchain projects do not impact the product performance;
• Community gives a positive feedback on the product, sees its value.
3. Token role. An important aspect for any investor directly influencing profitability. It is difficult to single out the best token model, but the required attributes can be described:
• Functional application within the network, which cannot operate without the token;
• The token demand among the network participants increases together with the project development.
4. Current achievements. This will help to understand the main goal of the team - to launch a particular product or to earn by means of ICO, and whether the team can work without substantial financing. Notable achievements prior to an ICO lower the risks for an investor. The examples of such achievements are:
• Free access to the alpha version of product;
• Speeches at conferences;
• Valuable partnerships.
5. Roadmap. Information from a roadmap will give the investor a clue as to when to expect any market activity. When a project hits its milestone, token prices usually surge. An ideal roadmap contains a detailed description of development stages taking financial component into account. In this case the team has a good understanding of how to move to the set goal.
6. Team. This factor is the main indicator of further project success for many investors. A good team can change the product or invent a new one in the worst-case scenario while a bad team can fail even with the best idea. A perfect team at the ICO stage includes:
• People having experience / expertise on the selected market (it is kind of hard to create a product for lawyers without any lawyers);
• Blockchain developers;
• People undertaking business process (operations, finance, scaling);
• CEO with experience in management and business;
• Advisory board to complement the team in the above mentioned aspects.
7. ICO conditions. Pay attention to the three following components: ICO limits, holding conditions, token distribution. There is no correct format, the conditions may significantly differ depending on the specific crowdsale. Positive aspects for each of the components are:
• The minimum and maximum amounts the project can collect correspond to its scale. It means that if a project fails to reach the minimum amount, all funds will be returned to the investors, and in case of a success the project will not receive any "excess" money. It's a big plus if the team can justify the ICO limits rather than just indicate the collected funds application fields. Even better if the money is given out in parts, upon reaching of particular milestones.
• The holding terms prevent accumulation of tokens in the hands of the largest players (whales);
• Token distribution is specifically justified by the team, the founders get a small percentage (15-20%). The team will not be able to sell tokens for an extended period of time.
Think about the investment strategy after the project review. There are two main ways: sell the tokens immediately after entering an exchange or wait for the future company development and exponential token growth. Both strategies will work out if in the course of analysis investors understand that the ICO is worthy and the project has great potential. However, specific results depend on various factors. Let's list the ones impacting the price growth immediately after entering an exchange:
There are not enough tokens for all investors. Everything potentially creating deficit of tokens at the ICO stage increases the future demand when they appear at an exchange:
• Many investors believe in the project. The higher the overall mass of investors assesses the project potential, the greater are the chances on price increase;
• The team runs a high-quality marketing campaign (only if there is an upper limit). Then more investors will know about the project and will want to purchase the tokens;
• The tokens will not be available on an exchange at once. The longer the pause after the ICO, the more chances on quick growth after the trading starts.
Let's also list the factors of long-term price growth:
The team is active. Investors assess the project higher if its developers are active in social networks, describe the current tasks and plans for the nearest future;
• The team presents results. It can be implementation of planned functions, new partners or clients;
• The project has development potential. The more and faster the project can grow in the future, the higher the investors' current assessment;
• Tokens play an important role. Tokens have high potential if functional (not speculative) demand on the internal currency is directly connected to the project development. All these factors are closely related to the project analysis criteria (team, market, ICO conditions, etc.). They can be used as reference questions before investing.