An initial coin offering (ICO) is the cryptocurrency equivalent of the stock market’s initial public offering (IPO), where a company’s stock is made available to the public for the first time. The fastest growing companies tended to launch IPOs within the first five years throughout the 1980s and 90s, with giants like eBay ad Yahoo doing theirs within three years. Since the turn of the century, however, most IPOs take place only after ten years.
ICOs have been able to register impressive results for companies choosing to raise capital in this way, baffling traditional venture capitalists with the fact that investors have been willing to risk backing crypto and blockchain projects that, for the most part, do not yet exist as a working product.
The distinguishing factor with IPOs is that investors who purchase shares also own a part of the company as stockholders. With an ICO, investors merely own digital assets or tokens issued by the company. In general, these tokens are meant to be used within an ecosystem of several types of users, whereby increasing demand for the ecosystem’s products and services drive the tokens value, sometimes in multiples of hundreds.
This was the stark contrast in 2017, where the highest performing S&P stock managed a 132% rise in comparison with a top 20 ICO performer’s token rising 20,000% in the same period.
As with all investments, past performance is never a guarantee of future performance. But the savvy investor will consider several aspects of an ICO.
ICOs tend to propose solutions to an existing problem or challenge and this will determine the project’s potential in market value and size. If the solution is identified, so can the competitors and the chances of gaining a market share. There should be a balance between choosing a niche sector which is unlikely to return high yields and a competitive one which can fail against rivals.
Most ICOs will present a high-powered team with big name individuals, but investors should always carry out their own due diligence on the personalities behind the project. Make sure they have existing references (such as a LinkedIn profile) that can help verify they have the experience and expertise relevant to the project. The advisory board should also supplement missing expertise and skill sets.
Now a staple of ICOs, the whitepaper tends to be comprehensive, detailing an executive summary, market research and analysis, product details and architecture, and development roadmap as well as financial forecasting. Also important should be the token structure. Read the whitepaper thoroughly and clarify any ambiguities with the management before investing.
- Capital raised
The total capital sought by projects will vary, depending on scope, but should still be logical. ICOs without a hard cap should have their motivations questioned, while private funding rounds implies significant interest from institutional backers, thereby increasing confidence in the project.
A recent ICO that fulfils these criteria would be the hybrid decentralized VR content platform, ImmVRse.
It is of note that VR hardware is already receiving massive investments and the next logical step would be content creation. ImmVRse’s aim to centre its solution around skilled content creators, by rewarding their talents and showcasing them, should help foster VR content growth and development. It is already predicted by market research, such as by analysts like Goldman Sachs and Garnet, that this market will grow to around $100 billion.
Rather than a mismatch of talents, the collective skills, expertise and know-how of its team make for what looks like to be a successful startup, with its founders coming from backgrounds of IT, finance and marketing. Advising them are specialists in the fields of VR, blockchain and law.
Its whitepaper delivers a sound plan on project objectives, their relevance to the industry and a roadmap for success. Its token structure also reflect good planning in line with industry standards, providing a fair allocation of funding.
As with any investment, self research is key. Investors should only invest with funds that they can afford to lose.