ICO evaluation might seem like a daunting venture; however, there are five major factors to consider that make this process easier for both new and experienced investors.
In this article, we dive into these evaluation strategies to get a better understanding of how the ICO market is changing, and how to determine the best investments for the future.
When it comes to the success of any company, the strengths and weaknesses of team members help define success or failure. When evaluating an ICO, it’s essential to consider the real-world experience and skills of team members.
For example, does a team have what it takes to build a successful cryptocurrency project and market to potential users? Oftentimes, the best teams consist of people who have a wide range of experience, from startups to large enterprises.
Another factor to consider is the role each team member played at their previous organisations. While having people who are “ex-Google” or “ex-Microsoft” is good to have, it’s better to consider the types of projects and the degree of leadership that they have accumulated throughout their careers.
The average ICO project team size is around 6 to 9 people. However, we are beginning to see an increasing number of ICOs with 20+ team members, as well as a large group of advisors.
Considering that many new ICOs are competing to solve similar problems and launch the go-to token within specific industries, examining the quality of partnerships can be a good way to separate a high-quality token from one that is just average.
For instance, if a company is looking to become the top cryptocurrency for the renewable energy sector or healthcare sector, it makes sense to partner with innovative companies in that particular field.
While it can be a very positive sign, strategic partnerships don’t have to be limited to companies that make billions of dollars in annual revenue. By working with a number of well-established companies that have proven business models, cryptocurrency projects are able to demonstrate their potential marketplace adoption.
Another thing to note is that strategic partnerships don’t always make sense if the intention of a blockchain company is to become a disruptor of a specific industry, which is often the case. For example, a blockchain project that aims to eliminate centralised cloud data storage and and provide a more affordable, decentralised alternative probably wouldn’t partner with existing companies.
3. Proof of concept / plan of action
In the early days of ICO investment (i.e. 2014 or 2015), not much was needed in terms of proof of concept for project teams to acquire funding from investors. The best way to equate this is by considering something like investment during the dotcom bubble in the latter half of the 1990s. Oftentimes, investors focused on the wrong metrics and overvalued stock prices.
One of the best ways to avoid getting caught up in a possible ICO bubble, is to try envision how the market and technologies can improve in the near future. As the market matures and more projects are competing for funding, investors should heighten their expectations of what technological innovations an ICO project team can deliver.
For instance, a blockchain project that can reach 3,000 transactions per second in 2018 might be considered at the leading edge of innovation. In contrast, new technologies could make 1 million+ transactions per second to become the standard in the near future. These numbers are constantly changing with technical improvements.
Now we are starting to see more projects launch MVPs, testnets, and even mainnets before trying to attract ICO investment. Essentially, this means that investors should ask questions like… “How well does your blockchain technology work?” Or… “What improvements will be added to make your blockchain solution better than your competitors?”
4. Potential market adoption: looking towards the future
Sure, it’s easy to realise that cryptocurrencies in the top ten in market cap rankings have gained high user adoption. However, it’s good to think about how market adoption can change over time. For instance, the largest technology companies of 2018 (i.e. Alphabet, Apple, and Facebook) were either non-existent or not that relevant in 2000.
It can be easy to forget just how much these rankings could change even within the next 5 to 10 years. The same could become true in the future cryptocurrency market cap rankings. There is a real possibility that a majority of the top tokens of the future won’t launch ICOs until 2018 and beyond.
When it comes to ICOs it’s good to think about how a project can change the future of not only technology, but the way in which people interact with the world. Sometimes this doesn’t work out, and projects that promised to bring innovation have failed shortly after ICO. This can be due to financial issues, technical constraints, or other factors.
It’s possible that a project can be “too far ahead of its time”. However, there are also a number of cryptocurrencies created by ambitious project teams that have not only succeeded continuously and delivered on roadmap milestones, but also gained market adoption. This makes it possible for these tokens to significantly increase in price value post-ICO.
5. Avoiding fraud: examine common signs of ICO scams
Even projects that appear to be good potential investment options can be fraudulent. As a potential investor, it’s important to understand some of the ways in which you can mitigate the possibility of falling for an ICO scam. You can find more about these potential red flags by reading our in-depth article on this subject.
Check to see if project team members have gone through KYC and AML checks offered by SingleSource or other services. By verifying that team members, partnerships, and other information listed on ICO websites are genuine, you can start to perfect the process of ICO evaluation.
Hopefully, by following the five strategies mentioned above, the ICO evaluation process will become easier to understand. Remember that the landscape of ICO investment remains highly complex, and there are a variety of other nuanced factors to consider.
Still, these strategies should help any potential investor begin to formulate an effective evaluation strategy, and be better prepared to navigate this ever-changing market.
If you'd like more information on how SingleSource can help investors evaluate ICOs and investors alike, download the free whitepaper here.