Initial Coin Offerings Demand Diligence From Investors
Investors should tread carefully when considering investing in a blockchain startup’s initial coin offering.
Failure to conduct thorough due diligence before buying into a blockchain startup is the biggest mistake coin buyers make. Though investigating of an ICO can be time consuming because of a lack of transparency, it’s less painful than watching a scam coin’s value fade away in the aftermarket.
While most of the development teams who are creating new coins, developing software and promoting offerings are honest and well intentioned, the promise of easy money in blockchain crowdsales has attracted hucksters and con artists.
Based on our experience advising coin projects, initial offerings can be divided into one of three categories:
- Legitimate, but misguided and inexperienced.
- Illegitimate and deliberately misleading.
- And, legitimately well planned and executed.
The legitimate, but misguided offering, involves well-intentioned software developers whose technological value proposition doesn’t stand up to rigorous scrutiny. While some amateur offerings have raised money, demand for their coins usually fizzles from a lack of support. Their core technological innovation doesn’t usually pan out.
Ask the Right Questions
Avoiding the first two categories takes the patience of a veteran police detective. Overcoming the industry’s lack of transparency means asking probing questions about a group’s leadership, their industry track record and how the project solves a real-world problem.
An illegitimate offering will usually contain key red flags to look out for:
- Is the offering supported by a vague value proposition?
- Is there a lack of information on the team and board of advisors?
- Is there a lack of a formal business plan with set milestones and an explanation of a clear strategy?
- Does the project extend promises of significant returns? Is there a lack of transparency and communication?
At Vanbex we use an in-depth survey to initially assess prospective development teams to help both developers and potential investors. The survey forms the foundation of what we call an Initial Coin Offering Memorandum, a public document that establishes a new standard of transparency in crowdsale communications. It lays out the scope of the project and fills any gaps in the development team’s technical white paper.
Most projects with multiple red flags will never even launch, and if they do, it is likely demand for the coins will wane and no one will be able to identify how the money from the initial offering was deployed.
The coin investor is left holding an empty bag.
The Future of ICOs
When purchasing coins in an ICO, investors are essentially buying into the potential value of the project, or are purchasing future access to the technology at a reduced rate. With a finite number of tokens available in an ICO, each token carries a percentage of the overall value of the project.
The future of initial coin offerings will hinge on how effectively development teams can address investor skepticism about the viability of their technology and management’s ability to deliver value to the market place. While blockchain likely has a bright future, the pace of development will depend on the ability of development teams to win and retain the trust of potential investors.
Recent News from Our Clients
Intellisys Widens Eligibility for Upcoming Crowdsale
Cayman Islands limited partnership Mainstreet Investment announced the lifting of previous restrictions regarding participation in the upcoming digital token sale on Feb. 13.
Eligibility to participate in this unique investment opportunity is now open to the entire northeastern hemisphere including the European Union — subject to local laws and restrictions.
50 million Mainstreet Investment Tokens (MITs) available for purchase. The sale will run through April 14, 2017, or until all tokens have been sold.
Visit intellisys.ai and mainstreet.ky for more information.
EDC Sells $250,000 Worth of Equibits on Crowdsale’s Opening Day
Toronto-based Equibit Development Corporation, creator of the Equibit blockchain and blockchain applications for the global securities industry, opened its initial coin offering on Feb. 1 selling $250,000 worth in equibits on the sale’s first day.
“We’re off to an incredible start. Over 120,000 equibits have been sold so far," said Chris Horlacher, EDC’s chief executive officer. “This shows the strong support we’re getting from the community and will only get stronger as events unfold over the next two months.”
For information, please see the EDC website at equibit.org
Spells of Genesis: Full Launch is Coming!
This past December, EverdreamSoft unveiled its blockchain-based digital trading card game, Spells of Genesis, on iOS and Android in Canada and Switzerland.
The soft launch was made possible through an innovative partnership with All 4 Games, the video game publishing arm of U.K.-based Channel 4 TV Corporation.
If things continue to go as well as they have, according to EDS CEO Shaban Shaame, the global launch of Spells of Genesis will happen in just a matter of weeks. Stay tuned into this project by visiting spellsofgenesis.com.
Some Upcoming Events
The Blockchain Event
Fort Lauderdale, Florida — Join industry leaders, developers, and leading investors at The Blockchain Event Feb. 9. The one day marquee event will explore the trend shaking the traditional investment industry, the Initial Coin Offering, a new form of capital raising unique to the blockchain and cryptocurrency market. For more information: theblockchainevent.com/east.
Global Summit on Blockchain Technology in the Energy Sector
Vienna, Austria — Join the leading energy and blockchain experts to discuss and develop new energy solutions and foster innovation for your business and your community. Event runs, Feb 13-15. For more information: eventhorizon2017.com.
Blockchain 2017 & Smart Contracts
Berlin,Germany — Conference runs Feb 20-22 and will focus on the year ahead in blockchain technology and smart contracts. For more information: blockchain-event.de.
Bucharest, Romania — The leading conference on decentralization returns for its sixth instalment exploring the future of financial technology, blockchain, the sharing economy, future of work and disruptive cultures. Conference runs Feb. 21-22. For more information: d10e.biz. Discount promotional code available at bravenewcoin.com.