I’ve been advising companies and ICOs for years and as a result of that experience I’ve developed a pretty good sense for what makes for a successful ICO-funded project (as well as what doesn’t). Here is a list of what I personally look for when investing in ICOs:
Does the Project Solve a Real Problem?
When it comes to investing in ICOs, I use the same basic analysis as I would with any type of startup, i.e., what is the problem that the team is trying to solve? Although Blockchain has the potential to be incredibly disruptive across multiple industries, the key word there is “potential.” If the underling project itself isn’t disruptive or doesn’t solve a fundamental problem in the marketplace that needs fixing, slapping a layer of Blockchain on it as nothing more than window-dressing isn’t going to make it any more disruptive. If the ICO doesn’t solve a problem that is readily explained in their whitepaper, I won’t invest.
What is the Market (and How Big is It)?
Just because an ICO has identified a problem in the marketplace (and has offered a viable Blockchain-based solution that will actually fix it) doesn’t mean that the ICO is a good investment. Unless there is an existing market that is both willing to adopt the proposed solution and is large enough to make the solution financially viable, the project is almost certain to fail.
What is the Project’s Team Like?
No matter how great an ICO project sounds in theory, to be truly successful it needs a solid team behind it to execute the project and make it a reality. When I consider the strengths of any ICO’s team, I consider each of the following things:
1. Do the founders have a truly “decentralized mindset?” Too often, the founders in many ICO projects are not true believers in the fundamental concept of decentralization, which I believe is critical for any Blockchain-based project to be truly disruptive.
2. How many collective years of experience in cryptocurrency does the team possess? The higher the number, the better.
3. Does the team include any distributed system experts? I believe this is a critical requirement.
4. Does the team include any game theory designers? Also, very important.
5. Does the team include any industry veterans? This is especially important where a project is trying to disrupt a well-established industry. If the team isn’t already well-versed in the nuances of the industry in question they’re going to have a steep learning curve ahead of them that might allow someone else to disrupt the industry before they are properly positioned to do it themselves.
Is the Project Easy to Understand?
This one should seem obvious, but so many ICO whitepapers I read are far too complicated than they need to be. If I don’t immediately “get it” after the first read-through, I typically move on.
Does the Project Have a Strong Community Behind It?
Most ICOs have created Slack and Telegram channels and have communities that follow them on Reddit. I think anyone serious about investing in ICOs should check out all of these for the ICO in question. If it doesn’t appear that there is much in the way of developer “buy in” or the discourse seems to lack direction from the founders or passion from the followers, it’s much less likely that the project will have any chance at long term success.
Projects That I Never Invest In
In closing, I wanted to list two types of ICO projects that I never invest in, even if they meet most or all of the criteria listed above:
1. Projects that merely replicate an existing solution (e.g., like Ethereum) with only incremental innovation;
2. Rent-seeking distributed applications (i.e., DApps that try to replicate the models of AirBnB or Uber, for example). This is simply because off-line businesses are far too difficult to tokenize at the present moment.