Your Guide To ICOs Investment Analysis in 8 Steps

I have been working closely with investors in the last few months helping them evaluate investment opportunities mainly in clean energy and SaaS sector. However recently I have got more requests to analyze startups that are planning ICOs. Now although I did participate in ICO before, I have not yet  done it in a systematic way. My previous investments where mainly just to try and see how ICO works. I also do own a bit of Ether, Monero, Litecoins and Bitcoins and whenever I hear about an interesting ICO, I just join with a small amount if the idea gets my attention.

But on a bigger level, can we come up with a methodology for analyzing a startup-ICO and recommending accurately those ICOs as a promising investment opportunity to investors?

I believe the more you look at ICOs the easier it would be to accurately predict their success. However, to start building experience with ICOs, I put together 8 steps to help any investor familiarize herself with Ethereum and the concept of ICO, to evaluate and decide whether a certain ICO is worth it or not.

You can always start with the idea, the market the team and product - which is more or less similar to traditional investment analysis. However only if you are convinced, and before putting your money,  take more time to analyze the hype, the tokens, financial numbers and the ecosystem & regulations to have a complete picture of the potential success of this team <-> idea <-> white-paper.


Step 1 - Analyzing the idea:

Just like with any business plan analysis start with the idea:
  • The problem
  • The solution
  • What purpose does a token have for this idea?
  • What is the business model? How will they make money?
Is the idea convincing? Move to step two:

Step 2 - The Team

  • Founders
    • Previous block-chain projects
    • Former Education
    • Education and background?
    • Trustable profiles?
    • Trustable network where the founders are engaged?
  • Technical Team
    • The know how is there?
  • Advisors & Partners
    • why and how?

Step 3 - The Product

  • Landing page only? For me personally, if the ICO is already announced with just a landing-page, I would skip the analysis and move on.
  • White paper only? Is the team good?
  • Do they have an MVP? What are some users feedback?
  • External audit of the code?
  • Running Testnet? What issues?
  • What is the product roadmap?
  • Technical white paper? Other documents for product? IIC doc for example.

Step 4 - The Market

You can start with initial analysis of the market to just get a feeling. For example skip the market size calculation at the beginning then once you decide to invest, calculate the market size and see if the founders expectations are realistic.
  • Demand
    • How big is the market
    • Top-down and bottom-up market size
    • Total addressable market
  • Competition
    • traditional competitors
    • direct competitors
    • indirect competitors
Tip: Check the additional notes below to learn where to find startups that are planning ICOs.

Step 5 - The Hype

How much hype a startup is getting will be essential in how much successful its ICO will be.
Start with the main communities:
  • Slack & Telegram
  • Reddit
  • Quora
  • Medium
  • Bitcointalk
  • Facebook & twitter
What to look for in those communities:
  • Older social posts / discussions
  • How interactive is the team
  • What do people say about it
  • Is the team reporting progress
  • Size of community depending on stage of project

Step 6 - The Funding Sought

  • How was it funded until now
  • Hard cap and soft cap, how much?
  • Where will the money go?
  • How detailed is the go-to-market strategy? Can you spot any concerns?
  • How much money went and will go into marketing
  • How much money will go into "building a community". This is a trend for many ICOs. While it may be necessary for many business models, it is widely misused and might be a way for founders to spend money without the need to explain where.

Step 7 - The Tokens

  • The process of partcipating in the ICO. How complex?
  • Contribution Agreement & Terms and Conditions
  • Token implementation - where will the tokens be used in the product and general economics of the business model.
  • Overall Cap Structure/ Token distribution. How much for the team? How much for the crowd? Any other category? Why?
  • How much for existing/accredited investors?
  • What will happen to the unsold tokens? Will they burn? What about the rest of supply?
  • Individual caps? 
  • Tokens issued limited to the initial crowd-sale ? 

Step 8 - Regulation, Risk & Ecosystem

apart from the risk associated with ICOs in general, try to see if there is risks that are related to the business model they are following.
  • How national and international low could affect the business model
  • How national and international low could affect the ICO
  • Technology Risk
  • Financial Risk
  • Economic Risk
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Some additional notes:

My personal preferences:
  • Find ICOs from within your network. Friends or friends of friends.
  • Avoid ICOs that didn't raise money from either angels or friends and family.
  • Avoid ICOs that don't have a working product
  • I like to follow the same 8 steps for each competitor. This helps me understand and rate the team performance in regards to their idea and the market.
Where I find companies that are planning ICOs:
  • From Quora.com and Reddit.com
  • Angel List
  • From coin exchange websites like Bittrex, Kraken, poloniex... etc
  • From ICOs Directory Websites, for example:
    • https://tokenmarket.net/ico-calendar
    • icorating.com
    • icobench.com 
    • https://www.icoalert.com
    • https://thetokener.com/ico-list
    • https://ico-list.com
    • https://www.cryptocompare.com/ico/#/upcoming
  • Simply from google and facebook ads! Make sure to like and follow different blockchain companies and pages so that facebook and google starts to tailor their ads based on your interests.


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