Regulations, spams, scams, exchanges, tokens, off-chain, crypto wallets, graphs, and airdrops. Words that are part of a hype, excitement and dismay in the investment space that is causing unprecedented disruptions in many industries. All these words also fall under what is known as the Initial Coin Offerings (ICO).
Billions of dollars invested in ICO campaigns in the past two years, but how many are actually successful? How many did actually manage to deliver what they promised?
With all the excitement that comes with ICOs, crowdfunds, or tokenized investments, a surprising amount of these “Nouveau” investors forget to realize that these companies are all simply startups. They are new enterprises that are raising capital to launch something that they believe will “revolutionize” whatever industry they are aiming for.
Let’s consider that all ICO companies are genuinely trying (I know, history says otherwise) and are working hard to build the next blue-chip giant. What makes them investable? What do they have or can do that can potentially help them succeed, grow and become profitable?
Greed, the ICO killer
Greed is a hindrance when judging an ICO. Most buy into the hype of one without researching the business itself. A huge majority of startups going for token sales end up solely focusing their entire time and campaigns generating as many participations as possible without one inclination of working in the business. I personally witnessed the amount of work that goes into the marketing, PR, and communication campaigns that went into the ICOs since it was part my job. Coming up with new creative ways to successfully launch clients ICOs.
What makes a successful Startup? There are four key elements that I always look into when evaluating a Startup. Business Model, Validation, Execution, and Team. There are more of course, but I use these key elements that are essential requirements any investor looks for before researching further. Unfortunately, they seem to be forgotten in many cases in the Blockchain or cryptocurrency trading world.
Let’s delve a bit deeper into these key elements and explore what you will be looking for in every ICO or crowdfund.
For the sake of the readers, MVP stands for Minimal Viable Product. What does that mean? To put it simply, a prototype, a workable product or service that functions for early adopters to use. It is also a great tool to help the company collect valuable data.
Why is it very important? Many reasons, first it shows me good commitment by the team. Awareness of the requirements needed by the users and covered by the developers. The development skills and ability to deliver, the speed of delivery and understanding the problem is a good indication whether the startup is addressing it or not.
The backbone of the entire operation. A good team will persevere and collectively face any challenge they encounter. Other elements that are important for a successful team are skills level, ability to communicate clearly, humility and ability to adapt to situations.
Leadership in the team. It is quickly visible when the company leader is always putting the team first and takes responsibility for supporting them through thick or thin. They are a team any investor feels like they’d love to work with.
Many believe having a superstar developer or advisor in the team raises the profile of the company for better investment. True to some degree but where does the loyalty lie for that star? Would she or he jump ship for the next big project they come across?
The foundation of the startup. Have they gone through one? If yes, how detailed is it? Who worked on it and how many were involved? Did they go after the brainstorming and work on every section of it?
What’s great about the business model is it offers a clearer visualisation to every aspect of the business and its roadmap.
Out of the 9 main sections of the business model, I will focus on the following. The rest are important although these are the most common signs that legitimate work has gone into the Startup.
“We are looking for $30 million hardcap to create the future.”
If the startup is asking for such an amount, whether in FIAT or cryptocurrency, you have to wonder how are they repaying all that back to the investors?
Simple maths: (Not great at it so I’ll do my best). When an ICO asks for huge amounts of investments with a promise of breaking even after three years, then they require to start generating at least a third of that the 1st year. That’s an average of $850,000 per month. If that is the case how are they going to generate that income?
Many believe that they will cover the amount with the value of the Tokens generated throughout the sale. In the last two years of global ICO madness, how many of the token / cryptocurrencies still have their original selling price?
Route to market
What is their market entry strategy? What has been accomplished so far? Has research been done to find who their audience and potentially paying customers are? Do they know who their clients are? Do they know who their users are? Yes, there is a difference. Users are an audience that are happy to use the startup’s platforms, products or services. So many relevant questions that need to be checked.
Simple Example is Facebook. Almost the entire world is a user who goes online, login to the platform to read a friend’s post, watch their videos, post a picture of their favourite food on Instagram (I do that, a lot!) and message GIFs and stickers to their connected friends on messenger.
Facebook’s clients on the other hand are companies or individuals the want to boost their presence through Facebook’s mediums or market a solution. They are paying customers. Easy as it may seem, many of the startups fall short on distinguishing between the clients and users apart.
The (actual) Problem
This is by far one of the most important parts of the business model. What are the main points the users need to be resolved? Are they willing to pay for it? This goes hand in hand with validation. Once the problem is clearly defined you will be able to establish what solutions can address them.
Blockchain or not, Startups need clearly define the problem and it has a substantial market for their solution. What they don’t realize is the size of the market. Is it big enough to generate the required revenue?
A good product or service that can resolve a problem is when the company realises the problem has a sizable market with a justifiable pain point that clients are willing to pay for. In some cases, these problems are mere inconveniences embellished to create sellable “Hot Air Ballooned” solutions.
The technical aspect of the solution is as important. It has to deliver what is expected with a valid value for money price plan.
The Blockchain space loves open source, so do I, if the company decides to offer it as a solution then what other ideas do they have to generate income? This must be clear before going for an ICO.
Is Blockchain or DLT required?
How relevant is Blockchain or Tokenomics in the business? Does it require Blockchain in the first place. If yes, why?
“We are disrupting the childminding industry with blockchain by creating wallets for parents to easily pay the minders.”
You tend to see loads of similar concepts that in my opinion are considered fluffy ideas.
Add the word blockchain and you have the world at your feet throwing money at you. Maybe it was the case in 2017, not so much now though. Majority of the ICO investors now want to see a meaningful reasoning to why blockchain is needed for their solutions with significant details to how it will be used.
If you are looking to invest, buy, or trade in ICO campaigns be sure to do significant homework researching the project. Make sure you see traction is happening and the team is capable of delivering. You can also create your own minimum requirements list that they have to achieve before you invest. If anything listen to your gut, if it feels too good then is it simply that. Go into it with both eyes open, be excited but always be aware.
Disclaimer: Like any other articles I write, this is not financial advice and cannot be considered as one, think of it as a guideline or reference on what to look for if you are interested in investing in ICOs or any other Startup for that matter.
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