Initial Coin Offerings have started revolutionizing the whole world of investments. It has started getting traction only in early 2017 and by August 2017 the size of the investments through ICOs in early stage ventures have surpassed the regular investment company’s funding. Today we are going to analyse the main pros and cons of an ICO in terms of the company and the investor perspectives and provide you with a guide on finding the best ICOs to invest in 2018 with our techniques.
Why do companies look into ICOs?
Typically, a company would look to get funding via private investors (rich people), various venture capital companies (a bunch of even richer people), or through an IPO. The later was only available for the companies with a huge size, usually above a billion. In most of the cases, flipping an IPO or just attracting an investment from the VCs or private investors was not a cheap process. Companies need to invest in a proper due diligence, consultancy and more. Besides that, it is simply a lengthy and a resourceful process. However, with an ICO, a company can eliminate most of these disadvantages and also gain additional strong points, such as the flexibility with issuing a dynamic amount of tokens.
Why would investors be interested?
Investing in companies is quite similar as investments in the real estate. We all understand that investing during an early stage is risky, yet it will be much more rewarding in case the project goes well. However, purchasing a property once the house has been built may actually be not as attractive pricewise. It might be rock solid investment which is still likely to pay itself back, yet it will be sold to the potential investors at the market price. Same goes for an IPO. When investors buy stocks, they generally buy a company that has been built. The risks of failure at this stage are smaller, yet the potential returns are lower too. With an ICO however, a potential investor gets an opportunity to invest in the company at its earliest stage (in most of the cases)
ICO Investing Guide
Now when we identified why ICO might be a win-win for both the companies and the investors, let’s take a look why how you can find a great ICO for your investment.
Check reviews and ratings
There are quite many stock reviews, analyses of currency market, and cryptocurrency predictions. However, the number of websites that focus ICOs is rather small. Still, you may browse websites like Tokenguru that provide ICOs reviews and ratings to see a general opinion. You may also visit various Reddit channels learn the overviews of the general public. However, keep in mind that there are many ICO scams and not all of the reviews are going to be authentic. Scams have large budgets and you should definitely weed out paid reviews when looking for the best ICOs to invest in 2018.
Check the actual products
Today there are many ICOs that are purely marketing driven. People come with an idea, develop a nicely looking one pager, write down a little whitepaper, and look to raise a dozen of millions. However, such companies have not started to work on an actual product and may even never start. Hence, look up the company’s activities, check out their github account, see when they actually started developing a product and how they are progressing.
Check the legal status
Today ICOs are getting into the dark side of the law. So far China and South Korea have completely prohibited investing into ICOs and raising funds via it. The US government has started taking some serious actions against fraudulent ICOs. While it is still unclear how the potential investors can be punished and will they be punished at all, it is still recommended to treat the legal practices with the caution.
Reach out to the company
You are not going to read such a tip often, but it is actually quite a good one. Unlike big companies that are flipping an IPO and employ some thousand or more employees, ICOs are usually launched by small companies, sometimes with as little as 10 team members. Hence, it might be quite easy for you to reach out and have a conversation with the company’s founders. By talking to the actual employees and founders, you will be able to get an idea of how the company plans to use the funds, what its goals are and, essentially, how they plan to make money.
Last but not least, investments in ICOs are quite a risky venture. It may certainly be attractive as you can look into ten folding your equity. Yet the risks are huge and you are very likely not to see your money back ever again. Hence, a great tip here is to never overinvest into a single ICO and, to be precise, not to allocate a large share of your portfolio into ICOs in general.
Investing in ICOs Summary
ICOs will stay as one of the most favourable instruments for raising capital unless they are prohibited by the governments, and many retail investors will certainly be interested in being the first ones to put their funds into a perspective company. However, considering the mechanics of ICOs, there should be quite many frauds appearing on the market and you should always choose ICOs with attention, care and in-depth research.