“If past history was all that is needed to make money, the richest people would be librarians.” — Warren Buffett
Even for accredited investors the ICO space can feel pretty murky. For one, its so new that the average person (or investor) has an insufficient understanding level to feel confident enough to invest at all. On top of that, a some bad actors are giving ICO investing less than favorable press, leaving many to wonder if the whole ICO space is as despicable as those outliers making the news. Before brushing off the ICO space altogether, it would be good to take steps to self-educate in order to reasonably determine whether ICO investment is for you. This article attempts to help lead you down the right path.
ICO investing is not a bad decision altogether. Smart ICO investments can be extremely profitable if done correctly. What’s even better, the ICO space is a more open for investment opportunities than Startup Land, which I hear is overcrowded with investors these days.
The truth is, your statistical chance of landing a great ICO investment is the same as investing in any other startup. Both show about a 98% failure rate, meaning that your chances of betting on a good startup or ICO are about the same as any other type of gamble. However, watching Snapchat, Instagram, Facebook and others make it an intoxicating opportunity for those willing to bet against the 2% odds. One good pick can yield you a ridiculously good return. For this reason, venture capitalists take the hedged approach to investing, meaning that they take on a portfolio of investments in different companies so that the gains from any one will hedge against their losses in the others. You should take this same approach in the ICO space as well. But most importantly, when you pick any ICO for investment, pick wisely.
Below are three good rules for smartly investing in ICOs.
Tip 1: Be financially capable of losing your investment
The first step to knowing whether you should invest in an ICO is what leading technologist Ben Way calls the burn test: can you feasibly burn the money in your back yard? If not, don’t invest.
This is no different than the sound advise that any good wealth manager would give you as step one in deciding whether you can take on a risky investment strategy. The truth is, it takes already having a lot of money to make a lot of money. The era of the retail investor is over, according to many wealth managers. Before you even consider ICO investment, make sure you are emotionally able to take on knowing that you may end up burning your money in the back yard, and have the cash reserves to financially recover from that risk.
“How many millionaires do you know who have become wealthy by investing in savings accounts?” — Robert G. Allen
Tip 2: Bet on great teams, not just great ideas
The second test is all about the team. Before falling in love with a brilliant plan, check out the team responsible for executing on that plan. That’s what you’re actually investing in. For ICO opportunities, look closely at the background of the individual team members and on their track record for success. If they have relevant experience, and a history of great execution, you’ve got a far better bet on their future success. For example, Digits is an ICO in the payments space, and our team came from a long background of payments: Visa, ApplePay, Ripple and other payments backgrounds. If a team doesn’t have a significant, and relevant, track record of success, the risk of losing your investment increases.
“When buying shares, ask yourself, would you buy the whole company?” — Rene Rivkin
Tip 3: Only invest in asset-backed tokens
Tokens are units of equity that you purchase in an ICO, so be sure that the equity is tied to actual equity. One of the problems that occurred behind the scenes in all of the ICO scams was that the tokens you bought were attached to a dream of the future success of the company. Without an asset base, the company can always produce more tokens.
Our tokens in the Digits ICO are tied to Ethereum, meaning that there are a finite number of them. We cannot produce more. What you get as an investor in these asset-based tokens is real equity. Without this, it’s all just dreams and fairy dust that the company can produce more of, leaving your shareprice at the whim of the beholder.
“Price is what you pay. Value is what you get.” — Warren Buffett
More on ICO Investing in General
ICO investing is essentially the one market where non-accredited investors have access to buy into a private company and gain an equity-backed ROI when that company goes public. Exciting stuff for the average person, but with its fair share of downsides.
The United States limits fiat currency investments to institutional investors only, until those companies start trading on the public markets. This is why ICOs are viewed as in their golden age because they are not yet regulating out any average person from investing. To become an institutional investor, you already have to be pretty wealthy and have a track record of investing, which limits the market to one where the rich get richer. This leaves ICO’s as one of the few remaining hopes for the not-so-rich to become wealthy. However, in the alternative there is no regulation to ICO’s, leaving little protection for the individual to avoid getting scammed.
This leaves it largely up to you. Do your research, and make smart decisions. The market is wide open, at least for now.
Digits.io will be announced on RenGen Labs this week, a premier token securities platform, as an investment opportunity.
Participate in Digits token sale here: https://goo.gl/NxRgHe
The Digits ICO is open for forward-thinking investors, should you have any questions regarding the product, would be happy to schedule a call with you. Contributions accepted in BTC, ETH, and LTC