To me though, a good ICO - or token sale - is by a team offering an attractive decentralized solution. A solution which organically incorporates a token, and their white paper gives the appearance of solid business fundamentals and not just a speculative opportunity. A team that can illustrate how they can seed and spin their product/service to achieve a network effect. Distributed applications on their own merit may not be enough to encourage people to move to your new social network unless it is 10x better than Facebook. Eventually, someone will figure out how we can enable webizens to take control and monetize their identities. YouTube has to pay you to watch their ads. Facehub has to pay you to post. Fithub has to pay you for your health profile.
- Look through their team, whitepaper, and most importantly, their market
- Look for any signs of red flags in the whitepaper.
- Do private investigation into the founders to check for preliminary signs of fraud. Check anyone linked to their group, including investors. Contact any links if possible.
- Figure out if the problem solved is an actual problem that the blockchain technology can solve for. This involves a detailed review of the market targeted by the ICO, the blockchain capabilities, go-to market strategy, and more.
- Do some market research to see if the product-market fit is there
- Check their open source code, do a detailed security audit of their code to make sure there’s no gaping holes
- Check legal risks. ICOs can be construed as securities. Unfortunately, I am not a lawyer specializing in SEC law, so I cannot make definitive judgements here. Only opinions.
- Check marketing risks. A dead ICO that checks other boxes is still dead.
- Go through databases to double check for fraud.
- Figure out what can possibly change in the future regarding management, political risks, etc.
- Team behind the project - Check the CEO and Co-founders Linkedin profiles, Their work experience can tell you a lot about the chance that the project will become successful.
- Reddit - In the crypto world the community is one of the most important things, like it or not, Reddit is the one of the biggest social medias websites out there and it’s the core of the crypto traders community. If people talk about the ICO there, it’s more likely that people will participate and invest in the ICO.
Telegram channel - Dont look at the quantity, but the quality of the telegram community.
By the amount of talk you can understand if they bought fake telegram users to join their group of they really have community who like to talk about the project.
- Github - Even if you are not a technical person, the project Github page will help you to understand how serious the ICO is.
- Medium/Blog - When I look at ICO I always check their medium blog. A good ICO will usually put some time and effort in creative marketing, and writing content that gives real value to the community.
Still, I didn’t want to throw money around randomly. My first step was to narrow down my list of potential investments to a manageable number of five to 10. To compile a short list, I looked at three aspects: 1) basic concept; 2) team; 3) interest or hype. Below is a list of questions that will help you:
- Can you understand the value of the token at least in theory?
- Is it easy to explain and understand?
- Who is the behind the company?
- Does the team consist of real people?
- What are their backgrounds?
- Where are they located?
Interest or Hype
- What is their hype rating on ICO Drops?
- How many people do they have in their Telegram channel and other social media channels?
Then, I would try to scan their white paper for more information about the solution. Honestly, I rarely found them insightful.
Guidelines for finding good ICOs
1. Go through the whitepaper
Remember you are investing in an ICO so that you can make some money at a later stage when the project behind the ICO pick. Therefore, you have to ensure that you clearly understand and that you are persuaded that the project will be widely accepted by the general public to make it successful.
To do so, you have to go through the whitepaper of the project. The white paper will give you a clear picture of the problem that the development team seeks to solve and you can relate with the current challenges to gauge whether the project is relevant or not.
A good ICO is that ICO whose project’s whitepaper gives a solution to a serious problem facing the majority of the people. This way, you shall be guaranteed that the project will pick.
2. Verify the project
By now it is clear that ICOs have no proper regulations and if not careful, you may end up investing in a scam. That is why you have to do a background check on the project to find out whether it is real or not.
One of the best places to find information about the ICOs is on the popular crypto forums like BitcoinTalk, Reddit and Steamit.
3. Look out for a solid development team
This cannot be overemphasized. The success of any blockchain project solely depends on the competence of the development team. Every member of the development team ought to be qualified for the position they hold.
A good development team list is the one where all members have given their contacts and link to their social platforms like Facebook so that you can be able to follow them up to find if they are really specialized to perform the assigned duties. You should therefore not shy off from contacting the members of the development team to ask questions. In actual fact, by asking the question, you will be able to gauge their level of understanding and confidence in the project.
4. Find out if there are any Venture Capitals (VCs) that have invested in the project
You can communicate with the development team to find out the venture capitals that have invested. You should also go an extra mile to verify if it is true the said Venture capital investment is real.
Venture Capitals are normally professional investors and they will not invest in a project that they are not sure that the development team will deliver. Therefore, the VCs act as pointers to ICOs that will be profitable.
5. Look at the code
This is something that is normally ignored by the majority of ICO investors especially due to the fact that not all of them are conversant with programming. However, if you cannot analyze a program/code, it would be wise if you approached a professional to do that for you.
When researching the code, determine if the code can really perform the tasks outlined in the whitepaper. Also, find out if it is a genuine code or just a copy and paste from another project by fraudsters.
Start with the ICO token metrics. First, calculate market cap to make sure they are not overvaluing themselves compared to other ICOs or existing altcoins.
Determine the Market Cap of the ICO:
Calculate the token price with this formula ETH Current Price/Num Tokens per ETH
Now multiply Token Price * Number of Tokens in Circulation (tokens sold in crowdsale + presale)
This is the company market cap roughly if the ICO sells all available tokens during the crowdsale. Take this market cap and compare it to the top 100 altcoins to see how the coin compares. If the market cap equals $30,000,000 then they would need to grow to $90,000,000 in order for you to make 3x your investment. Now go to Cryptocurrency Market Capitalizations | CoinMarketCap and see what companies have the same market cap as this ICO. Ask yourself: Is this ICO as good as the existing altcoin and is it or should it be worth the market cap they are trying to achieve with the ICO launch.
Now that you have determined that the market cap is good and that the altcoin has the potential to make you 3x – 5x your initial investment it is time to move on.
Read the Whitepaper:
Ask yourself these questions: Is the technology unique? Can this company survive/thrive without doing an ICO? What is the purpose of the token in the company ecosystem? Are they just creating a coin to profit in this ICO craze or does the coin serve an important purpose? How will the coin increase in value, is it based only on hype on exchanges or is it from it being used as a utility in the company? Does this company have competitors that may make this one irrelevant?
Research the Team:
First off, is the legitimate? Do they really exist on Linkedin, etc. You would be surprised how often the team members can be faked. Read the linkedin description to see if the team member is full-time with the ICO and if the ICO is even mentioned at all.
Research the ICO Advisers:
Are the advisers relevant to the ICO or are they just a shiny attention grabber? If you see the same adviser on multiple ICOs then their credibility/value to the ICO diminishes greatly.
Determine Level of Hype:
Don’t underestimate this step. An easy way to get a feel for hype and popularity is to google the name of the ICO. See how many mentions are in the google search results. Make sure you use exact matches such as quotes in the google search so that you don’t get results for the word ‘the’ or something generic. How many times are they mentioned on social media? The best way to do this is to go to BuzzSumo: Find the Most Shared Content and Key Influencers and type in the name of the ICO. This will give you a results list showing content and mentions on Facebook, Linkedin, Twitter, Pinterest and how many times the content pieces were shared. Go to the ICO website and search for the websites, social media and chat programs where they interact. Some of the most popular are Slack Channel, Telegram Chat, Twitter, Bitcoin Forum - Index, the front page of the internet.
Check out their existing product and code:
For this step you don’t have to know programming or anything like that. You will just want to go to their Build software better, together account as this is where they will store the code for their project. You can see how often they update their code and how active they are developing. Also, do some research on their past products if they are an existing business that is just expanding by offering an ICO.
Research similar altcoins:
Go to Cryptocurrency Market Capitalizations | CoinMarketCap and http://CryptoCompare.com and study similar coin charts. Of course, every company is different but you just want to get a general feel for the potential. Right now ICO investors are leaning towards investing in Protocols and Platforms such as 0x, Kyber and Raiden. Ideas that are needed to propel blockchain and cryptocurrency forward.
I’ll outline the main due diligence points and a sentence or two about them—these are the bare minimum factors you want to look at when evaluating ANY Initial Coin Offering (ICO) opportunity:
- Business Plan, White Paper and/or Strategic Outline (Industry/Market Problems with Proposed Solutions)—this is important because it tells you what the project is about, why it exists, the problems it aims to solve and how. Roadmap and specific plan on how they plan to operate the business.
- Token utility, Blockchain Choice and Crowdsale Structure—this is important because price is heavily influenced by supply and demand. Sometimes ICO’s are just ‘cash grabs’ where the leadership team only issues, say, 50% of the tokens to ICO backers, holding the rest…this could drastically effect the price of the token if they decided to sell a lot at once, for instance.
- Leadership team—the team behind any project is entrusted with carrying out the steps necessary to building the project, AFTER raising capital from the Initial Coin Offering. Somebody on the team should have technical programming experience.
- ICO Listing Sites—is the project plugged in? If so, how well? Did they make an effort to reach out to listing sites and, if so, what do their ratings look like on the listing sites?
- Github repository (code)—this isn’t always necessary, but it certainly is a positive if the ICO you are evaluating has a Guthub repository with recent contributions to it. This means the project is being worked on/developed.
My answer assumes you mean: How do you find good ICOs worth investing in. Here is a simple 2 step methodology that is simple enough for anyone to do.
Step 1: Find current and upcoming ICOs
Here are some of the top resources for identifying current and upcoming ICOs. These platforms will often give a rating to the ICO as well. (I am not associated with these websites, but I use them for my own research.)
They have ICO ratings, listings, and calendar with details on top ICOs. They dive into ICOfunding, whitepaper, dates, teams, and roadmaps.
Lists tokens and decentralized funding projects, industry news, and has an ad-free ICO calendar which is nice since a lot of places fill their launch calendars with ICO advertisements.
Called the Tinder for ICO Scoring… interesting approach. Uses crowd wisdom for better ICO selection.
These guys curate a list of ICOs with ratings, analysis, and reviews.
Straight forward site that shows ICOs in 3 columns: Active / Upcoming / Ended. Gives a rating and analysis.
Outcome: Using these sites you can create a list of interesting ICOs to take to Step 2, the research!
Step 2: Research the ICOs
Take your list of interesting ICOs and perform your own due diligence.
These teams will be pre-launch so there will not be financial performance. This means your most insightful due diligence will be on the team, their concept and the technology they are building. For me, this research is a process of elimination.
- Research the team members.
- Research the advisors.
- Understand the problem they are trying to solve.
- Understand the solution (technology) they are building.
- Understand the milestone/timelines.
- Understand the quality/size of the community.
This research will include google searches, reading founder blogs, watching explainer videos 15x, asking questions in the community in reddit/slack and much more. Your focus here will impact your results. Prior to my ICO investments I spend between 1 to 8 hours of research.
Following those 2 steps will help you find a tight list of good ICOs! While ICOs can be exciting and have huge upsides they can also turn into a blackhole from which no investment returns, it may be a good idea to balance out by looking at some established projects. On Upfolio you can search blockchain projects by category and see details on their past ICO, team, social score, exchange markets and more.