Crypto Investor’s Guidebook to Fundamental Investment Analysis

Navigating the crypto economy as an investor is a daunting task for any individual or organization. I have friends that tell me about their success in the U.S. stock market’s recent boon with a whopping 5% return on their portfolios, and I snidely chuckle to myself. I then log into some mornings, see all the red, and fight to hold back the tears. The volatility we face in these markets can be intimidating, but the returns too juicy to ignore. Today, speculation is the name of the game. I am here to stress to you, however, that speculative investing in ICO’s is a fool’s errand. As the crypto economy evolves, it will require more educated and informed investors, capable of performing fundamental investment analyses on upcoming ICO’s, similar to what VC’s perform on startups, to determine which are worthy of participating in.

Many investors in the crypto markets are unfamiliar with such practices, and to date it has not been entirely necessary. I would like to take this time to lay out the basics for how I use these traditional investment analyses as I evaluate ICO opportunities and share them with you. My hope is you find value in them and apply them as you perform your own due diligence on upcoming ICO’s.

1.Team: For me, the most essential aspect of any new venture’s success is the makeup of the management team. Let me start by saying a “team of 3” is not a complete team, and an “Advisory Board of 10 members” does not enhance a small team in any way. A team is an organized group of individuals with the necessary experience, competencies and academic credentials that fill all the managerial voids required to launch their specific venture. This means somebody must have experience in:

  • business development and management
  • the technology the company is developing
  • the startups target industry
  • sales and marketing
  • financial principles

If the team does not fill these basic requirements with their credentials, it is essential they are aware of this and actively are trying to fill the void. Make sure you deep-dive into the make-up of the team of any ICO you invest in to verify if they are capable of delivering on what they promise.

2.Product: Any startups success is predicated on their ability to develop and manufacture a product or service that their target consumers will use. Often, this is called the Minimum Viable Product (the base product consumers will accept), or an “MVP.” An MVP is continuously iterated over an arduous time period for the startup as it is perfected for the consumer. In the case of many ICOs, the product is the coin or token offering itself, while in others the ICO is merely a fundraising tool used to further develop the actual product or service. It is critically important to evaluate the proposed products and determine if it is something that is technologically feasible, and that users will adopt. Any ICO can promise the coolest, most technologically advanced protocol, AI or widget, but only ones that have the capabilities of delivering on their promises, or already have a working prototype that consumers have adopted, should be invested in.

3.Business Model: Often it isn’t important to just have a cool new product or service, but the business model supporting the usability, delivery, manufacture or consumer engagement with the product must be innovative for the startup to truly be disruptive. In this light, ICOs offer a grand new opportunity through the tokenization of entire business models to engage their consumers and other stakeholders in a completely new and disruptive way. ICO startups accomplish this by empowering their community of users through a utility token instrument. Value is driven across the ecosystem in many creative ways, including through the sharing of data, processing of payments and the utility of the services the tokens offers its holders/investors. ICOs that offer this type of utility to consumers, backed by a real-world business model and use-case, provide sustainable, long-term growth investment opportunities.

4.Financial evaluation: This is likely less important when it comes to evaluating ICO opportunities than it is for VC’s as they invest in startups. The reason being is many ICO investors are unfamiliar with sophisticated financial valuation methods such as Discounted Cashflow Analysis, Comparable Multiples Analysis or other KPI Analyses that VC’s employ. Additionally, this isn’t even possible given the lack of a financial reporting framework in the crypto markets where an investor could more thoroughly evaluate security-esque or profit generating ICOs. While the time will come when these will be employed in the crypto markets, given the inevitable rise of security cryptos, for the time being it is essential to keep an eye out for ICOs that do not have a reasonable hard-cap and clearly justify the reason for the fundraise. Over liquidating projects are cancerous to the crypto economy, as evidenced in recent launches such as Tezos, and leave little to no room for return potential for investors. The risk of misappropriation of assets in over liquidated projects is higher as well, with minimal oversight granted to token holders to ensure proper governance.

5.White Paper: This is a document that can tell to the future investors the whole essence of the project, from a general idea to technical details. It is good if it clearly describes the logical and achievable goals, business plan and the main target markets, as well as the stages of financing. Even better — if any technical details are published. A bad sign is a vague formulation or a blatant abuse of terminology, masking the absence of meaning.

6.Clear plans: Relatively reliable ICOs have a road map which is available to investors. It should describe the stages of financing, the tasks for which money will be spent, and the terms of work. Terms and tasks should have a realistic look. It’s bad if the creators promise to make an incredible breakthrough in a short time or claim that they have, for example, a beta version of the application and don’t give details of its work or links to the code.

7.The value of tokens: The most important thing is the value of the token after the ICO. It is desirable that the number of tokens remains unchanged or even decreased in the result. Well, if the holders of the tokens are promised with some profits and discounts on the project services, or at least tokens can be used as an internal currency for payments. Even better, if the company is going to redeem tokens with a premium to the placement price within the agreed time frame. It’s bad if the company continues to unrestrictedly issue tokens, because your investments will quickly depreciate.

While following this model does not guarantee success (even the best VC’s will miss on most investments they make), it should help guide you through the murky waters of the crypto and ICO economy. I would encourage you to employ this thought process as you evaluate your next ICO participation… you may find value (or lack thereof) that was not readily apparent before.

Remember that ICO is a high-risk way of investing. Its regulation is just beginning to be created, there are no proven mechanisms for investors protecting. Therefore, you need to assess all risks yourself and choose ICO for investment with caution. Check every detail of the company that you are interested in — and you probably will succeed.

DISCLAIMER: This article is the individual opinion of the authors and should in no way be treated as investment advice.


Patrick Lowry, CEO — Iconiq Lab

Patrick is a venture capitalist and investor with nearly a decade of financial industry experience. Previously, he was a PwC auditor and a startup co-founder/CFO. He holds an MBA, a CPA license and a BS in finance and accounting.

Vladimir Malakchi, CMO, ICO VentureOn

Vladimir — CMO of ICO VentureOn, specialist in Public Relations, founder of TetraTerra project. He has marketing experience in different spheres of business. Working with social media marketing since 2010 year.



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