William Mougayar is the author of “The Business Blockchain”, a board advisor to the Ethereum Foundation and a venure investor.

In this opinion piece, Mougayar offers his thoughts on a new blockchain use case being evaluated – and used – by entrepreneurs as an alternative to traditional venture capital.

Initial cryptocurrency offerings, or initial coin offerings, (ICOs) are the flavor du jour in the sprawling crypto-tech market.

As I’ve described in previous writings, ICOs represent a fundamental shift in how companies get funded, at least when compared to the traditional venture capital driven methods.

What I inferred from that post is that the way forward is a clever combination of both worlds, the old and the new, a point that Zenel Batagelj from ICONOMI picked-up in “ICO 2.0 – what is the ideal ICO?” – a good post that I strongly recommend.

For background, I’ve already described the “best practices for ICOs” in a lengthy post two years ago. Its lessons still apply, but for a new reason: there are several more ICOs today than in early 2015.

I’d like to expand my own thoughts on how to evaluate an ICO by categorizing the criteria along four dimensions:

  1. Startup characteristics
  2. Operational transparency
  3. Crypto-sale resiliency
  4. Business model relationships

Arguably, the bar is higher now because if you want to comprehensively evaluate an ICO, you need to look at some new dimensions.

But at the same time, the bar can appear to be much lower because no one is forcing new investors to examine these four areas with the same required rigor that venture capitalists typically exercise, and specific ICO regulation appears to be lax or non-existent.

ICO evaluation

That’s where all the traditional VC stuff goes in. In a non crypto-tech world, VCs would continue their jobs as they always have, by making investment decisions based on evaluating startups, one at a time.

This is where the traditional “team-product-market” trifecta evaluation comes in, and I’m not going to rehash what happens in that dimension.

It often takes a career lifetime to perfect how to invest based on pattern recognition and drawing your own guideposts for making decisions. You can’t replace that, and you can’t fake it either. In here, you can add such topics as competition, go-to-market approach, product roadmap and implied valuation.

A warning signal emerges when newcomers start offering broad brush evaluations without having had the benefit of direct investment experience that includes lessons learned from having made good and bad decisions.

An additional requirement here is that someone evaluating the markets or solutions being targeted by these new companies needs to know something about the emerging crypto-tech space.

Many of these companies are not targeting traditional bricks-and-mortar or existing online markets.

Rather, they could be basing their models on the assumptions of a new ecosystem of blockchain-based users, applications and novel types of marketplaces, with new types of services that didn’t exist before (eg: identities, verifications, rights, smart assets, smart contracts logic, etc.)

Crypto-sale resiliency

Here, we enter crypto-tech territory. This part covers the sheer mechanics of the cryptocurrency sale, including its legal and regulatory aspects.

Some questions to ponder include:

  • In what jurisdiction is the company incorporated?
  • What legal structures are being disclosed?
  • What is the token distribution structure?
  • How is security handled?
  • What are the apparent, perceived or real regulatory risks?
  • Are there plans for external or internal audits?
  • If there is a DAO-like component, is its articulation realistic and well grounded?
  • Who has written up the token issuance contracts and actual token issuance software?
  • Which blockchain infrastructure is backing up their sale?
  • Have they published the terms and conditions of the sale in clear language?
  • Have you talked to at least three other entities who have successfully done a token sale before?

The non-profit advocacy group Coin Center has published a very good analysis that is worth reading. It mentions two important points to keep in mind: 1) tokens must be a utility to the operations of the business, and 2) they should only become available after your operations, not prior.

Operational transparency

I wrote this in February 2015:

With public money comes greater responsibility. Doing a public crowdfunding campaign is a two-way street. It’s almost like being a public company from day one. It’s not easy being in the public eye. If you can’t deliver the transparency, don’t take that path. And if we don’t self-govern to higher standards, the regulators will come and put a damper on this journey.

This is all still true, and it relates to how you plan on communicating progress visibility.

Some questions to ask:

  • Is the company providing public dashboards?
  • Does the company have independent auditors?
  • Are their delivery promises well articulated so that…



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