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What to look for in an Initial Coin Offering

What to look for in an Initial Coin Offering
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And what I think represents a useful “Expert’s assessment”

Who are the team and what is the legal entity ?

Many ICO contributors tend to overlook two significant items when they review a project and consider funding a project.

1.      What is the corporate structure; and,

2.      The people who will be executing the roadmap and plan.

It is essential that adequate due diligence is carried out on both these things.

Due diligence in the crypto space seems to be limited in most cases to a few social media verifications via Linkedin, Twitter and Facebook. But, does that cut the mustard?

Before handing over your hard-earned cash, ETH or BTC, do some more checking. Put some hours or minutes in — ask the founder for a skype call so you can have a face to face discussion, smell the passion, and find out how he is REALLY motivated. If they are too busy to have a ten-minute call with a potential investor, walk away. How do you think they will act when they have bags of ETH in their pockets!

Check the legal structure. Many countries have a public record of business registration. Check out the shareholders and directors, any filing issues, any conflicts of interest not disclosed, any previous companies that have failed for unusual reasons.

A good investor will have done the above as part of their due diligence if they claim to have expertise in the financial or compliance area. On TOKEN Experts could and probably should go to the extent of vetting project founders via a quick call. The should be able to check and therefore identify the types of issues described above.

“Build it and they will come” … Really?

It's very common in the development stage for the team to get caught up in their dream and focus on delivering some tech without considering who or what will pay for it. It is critical that the target customer and user is identified and a business model is produced to demonstrate that there is a real underlying business to the product.

If there are no users of the product, the token has no use, no utility, and no value.

Make sure you ask the team about the business model, will they charge fiat and/or token, what are the margins, when will it break even cash flow wise. If it's not a sustainable business then ICO proceeds will be spent, and the company will die along with the token.

An Expert who has a financial background should also be commenting on this analytically in his or her assessment.


Financial control and reporting post ICO

Financial reporting is another area that is overlooked by many companies for a variety of reasons. Many ICO’s do not have financially aware employees and do not quickly address this post fund raise. It is very difficult for a young team of developers who have just landed 20m USD to work out what to do. The lack of team experience can be a huge issue with limited knowledge of cash flow statements, balance sheets, hedging of assets and general good financial control.

There are many ICO who don't have a treasury department and have no idea of their real financial position as many are not keeping prime accounting records so are falling into the startup trap of managing by looking at the bank, or crypto balance and not including assets and liabilities (don’t mention taxes…).

It is important to look at the skillset of the existing team including advisors to identify any weaknesses in the financial control area as if this is not addressed quickly post ICO at the latest , there is a huge risk for token holders. If these controls are not in place, only invest if there is a escrow system to protect the use of funds.

Experts should be commenting on the experience of team in relation to financial control as part of their reviews.


Why a token? What is the token’s use case?

Does the token make sense or has it been shoehorned into the business to justify a ICO raise? Tokens are logically used when you can grow a network and the Metcalfe's Law effect kicks in. If that is not possible, forget a token. To that end, also find out about the social media marketing plan, and any community management plans that will engage potential users.

Always have a look at the tokenomics. Does the number of tokens make sense looking at the business model? What are vesting periods? Are tokens given out for bounties (that will get dumped)? What discounts have been given out in early rounds? Do team refuse to give details of private sales prices and volume?

A good Expert assessment will address the tokenomics with a solid understanding of the above dynamics and mechanisms.

What is most important?

It's your money. It’s your decision to invest. Do not invest blindly relying on others who you may only know as an avatar.







28 Aug 2018 reviewinitial coin offeringfinancial reportinglegal structuredue diligence
The views and opinions expressed in blogs are those of the authors and are not the official policy or position of ICObench. Any content provided by our bloggers or experts is of their opinion and they are fully responsible for it. ICObench is not legally responsible for the blog's content.

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