Initial coin offerings have become the newest way to raise massive amounts of capital for Silicon Valley start-ups by utilizing cryptocurrency, but there are a few things you should be aware of before you decide to invest in an ICO. ICOs don't have the same regulatory safeguards that have been put in place with other methods of raising capital. Here are a few quick tips to help protect you should you decide to invest in an ICO.
Familiarize Yourself with the Development Team
Before you throw money headlong into an ICO hoping to make it big when the next start-up reaches success, you should familiarize yourself with the people who are asking for money. Have they managed successful projects before? Is there a dedicated roadmap for the development of the project they're funding? Answering these sorts of questions will help you make a more informed decision about where you invest your funds.
Understand the Scope of the Project You're Funding
Throwing money at an ICO because it's the hip thing to do is a good way to lose most of your money. Understanding the stages of product development will help you make sound choices when it comes to investing. If a project is in the proof of concept phase while trying to launch an ICO, it's probably not an investment you should count on for returns. ICOs can be just as lucrative as Forex trading, but you need to be just as savvy as Forex investors when choosing which "horse" you will bet on in the long run.
Know the Importance of Media Coverage and the Community
If there is a lot of hype about an upcoming ICO, you will do well to research how the development team is reaching out to investors to attract attention. Shotgun approaches that target many small communities to generate hype can be beneficial for the developers, but not so beneficial for those who are investing. Look at how active the developers have been in engaging with their current and future investments because this can help you decide on whether or not to invest.
Take the Whitepaper Seriously
Any project that is seeking funding through an ICO will have a document called a Whitepaper that details the plans and information that investors should consider. Read through this paper very carefully and with a financial consultant if you have concerns. They can help identify risks and concerns that you may not have considered in your initial once-over. Understand how the token will be implemented in the final business product so that it continues to hold value over the life of the product. As with any investment, doing your due diligence will save you time and money over the long run.
Know How the Developers Plan to Distribute Tokens
Since an ICO is about distributing a point of value that may rise or fall as the project gets underway, you should be aware of how the tokens will be split during the ICO. It's common for developers to retain a majority share of these tokens to bet on their projects, but token buybacks and unsold tokens can directly impact the value for every token holder. Your chosen project should have a clear outline for how the tokens will be distributed and whether or not they will offer buybacks after the initial crowd sale period has been completed.