Blockchain projects- The good, the bad and the naive investor

Investing in Blockchain projects- The Good, the Bad and the Naive investor tips

*Opinions are my own and should not be viewed as financial advice.
This article merely reflects my personal thoughts and views*

I often get asked what are my rules of thumb when it comes to early-stage investment in blockchain projects? Is there a formula? Some checklist or formula of sorts? What do big investment teams look at?

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Blockchain is still a developing technology, and while DECENTRALIZE EVERYTHING was a nice hype phrase for a while, we as an industry need to focus on building secure, stable, scalable user-friendly tools before we can talk about mass adoption or changing the way users operate with their daily APPS. Yes, a decentralized Uber or Airbnb might be the way to go, but not now, not at the current situation. Think how long it took to onboard millions of users to these apps, in order to get them to switch or “upgrade” to a new version of this concent has to be done in a seamless action, without disrupting the way they are used to operate their mobile/web apps.

Trust in technology does not happen overnight, it takes time, a few tries usually, as well as learning to improve and satisfy both your client needs as well as the general market’s one. Users don’t always know what they want, but once they get accustomed to a solution that improves that specific need, they know what they don’t want anymore.

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Blockchain- * we can argue what is a blockchain, but I’ll leave that for another article,* as a technical, technological concept is here to stay and implementation in right fields and companies is the way to go. Institutions, private companies as well as academia are putting more and more focus on understanding this technology and how it can innovate various industries, and while some might argue “crypto not blockchain”, I will mostly focus on blockchain based projects, that don’t necessarily issue a native token.
Good blockchain projects are still out there, working hard researching, building products and innovating the space and while many crypto projects have made many private investors wary and suspicious of upcoming ICO/IEO, traditional investment money, through institutions or VC’s, are still investing in good Blockchain projects.

Image by CB Insights

Let’s start by making something clear, now that we’re post-ICO craze era (thank the crypto lord), and having a pdf version of a white paper with A-listed advisors doesn’t cut it anymore (nor should it have before), raising capital is back to how it used to be in that early-startup stage. I look at projects that have a solution to a problem, either an extension of a solution that already exists but does it better, faster, cheaper or a whole new solution that solves a problem that hasn’t been solved.
Many of the questions for due diligence purposes are presented here in a nutshell:

Why do you need a blockchain?-

This is one of the first questions I always ask. And so should you. Don’t just slap “It’s like ‘concept 123’ but on the BLOCKCHAIN!” just to hype up your investors or board members once you’ve pivoted from your original idea. *I’m not saying you shouldn’t pivot to a blockchain based solution, by all means- if that’s the best fit for your technology, and can prove why storing data in this matter rather then on a secure set of databases, go for it. But have a reason, a well thought-out, researched one (or two).

Show me the numbers-

While having a community is important, actual usage is crucial.
Big supportive communities on social media are great, but let’s talk about client agreements that you’ve signed. Let’s talk about collaborations with companies/projects with an active and large user base that would benefit from your product. Let’s talk about implementation and usage.
If your pitch is “Building a decentralized version of XYZ” presents the research and conclusions that lead the team to build your MVP in that specific manner, show the lines of code (or some of them), what flaws of that original concept are you improving by “decentralizing” it?

The Big T-

Your Team- From the founders to the actual members, who are your team members?
What is their past experience? What do they bring to the table? What’s the structure of the team? How big is the team? Where does the team sit?
What’s the vision for the team? for the company?
I’ve found that looking at the team members and learning who they are, what they bring to the team and how the team operates carries much weight when reviewing projects.

Investors-

Angles, VC’s, your mom and dad-
Your investor list is important, whether it’s a big famous VC, your own savings or another sort of financial support, this is a big qualification.
How active are your advisors and investors? Do they guide and support the project? Do they help connect to useful industry players or potential clients?
Who among them is active and why? Who’s hands-on and updated frequently and who’s a silent investor and why?

Privacy and Security

Privacy and clean-data are more than just annoying headlines in emails that stack your spam folder. We live in a world where data have become almost scarce. The way we store, upload, trade and use our (and other’s) data is everything today and will just increase. How does the company manage these two issues? How do they ensure data is safe and prevent future risks?

BUIDL BUIDL BUIDL

What’s the business model for the company?
You’ll be surprised how many times projects have no feasible or sustainable business plan. You can’t build a company by jumping straight to the end product, it takes time, planning, thinking, figuring out all the nitty-gritty details first. Prepare for different scenarios and have solutions to deal with what may come.

Communication

I firmly believe that you can learn a lot from the communication between founders and investors. First impressions as well as first judgments carry much weight but don’t dismiss ongoing communication as a key factor.

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As mentioned in the disclaimer, these criteria are my own personal ones.
Just like building a good product a good investment assessment takes time, there are various ways that VC’s and investors estimate should they invest in a project, and the process is long, complicated and must be done thoroughly.
These basic concepts are presented in a general manner as to serve an example and food for thought.


Blockchain projects- The good, the bad and the naive investor was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.