At the Blockchain Connect conference in San Francisco last week, CoinDesk’s Bailey Reutzel made some useful notes from a panel of ICO investors. The following tips from Linda Xie, managing director of crypto hedge fund Scalar Capital, are especially pertinent. She talks about how to weigh up the merits, or otherwise, of a blockchain startup doing an ICO:
Xie said she asks three questions before moving forward with an [ICO] investment – “Is this something that anyone would want to use? Does this actually need to be decentralized? Does this token actually make sense or can you replace the token with a more liquid coin like bitcoin or ether?”
She continued, saying that all the more traditional mechanisms are vetted too, such as the supply of tokens, the inflation rate, the community interested in the project, what percentage of tokens is being held by the founders and the governance structure. Plus, Xie’s co-founder is a developer who analyzes the codebases.
Another key factor, which Xie probably just forgot to mention, is the quality of the founding team. On that note, one thing to bear in mind is that there are relatively few technical experts in blockchain technology at this time. I chatted with a developer recently, who told me that blockchain is “still technically very challenging to develop with.”
So when you’re evaluating an ICO, take a close look at who their technical people are. Ask yourself whether they have the technical chops to build what’s being described in the company’s whitepaper.
Plus of course, look for evidence of technical nous. Even if a blockchain startup hasn’t yet produced their final product, they should at least have some open source code available and preferably a working prototype of some sort.
p.s. Linda Xie has written a series of beginner’s guides about cryptoassets, which are well worth reading if you’re new to blockchain startups.