Alexander Rugaev is an ICO expert, and the ICO Executive of Sydney-based blockchain startup Supercomputer Organized by Network Mining. SONM raised $42 million in its ICO last week. As ICO-mania spreads through the markets, Finance Magnates sat down to talk with Mr. Rugaev about the pitfalls of ICOs for startups and investors.
Aren’t recent ICOs raising unrealistic expectations with the amazing amount of money they are attracting?
You are absolutely right. Although there is nothing surprising here. The model of crowdfunding inherently contains the idea of access to a huge number of people. However, I recommend that market participants resist the temptation to focus on huge profits. The market is too actively growing, as well as a number of ICOs, competition in the field of startups is also constantly growing…. and the days when an investor invested (even often automatic, with pre-written script/bot) in all possible launches gradually fade away.
Investors grow up, tools for new project analytics and assessment are progressing. The market is not infinite, so participants have to assess new projects more meticulously and in detail. So, my prediction is that such profits will remain, but in future they will be distributed only among the truly worthy projects.
Still a very large question is connected with the real product. The project can be very successful in terms of PR activity, marketing, advertising, can gather a huge community supporting the idea. But… does the project have a real working product? Many ICOs in fact sell only a virtual possibility… the possibility of making money on the resale of the token in the future.
Until nowadays, many people were not so worried about, does a project have a real product: tokens are issued, token name has the support of key exchange services – and that was enough. Now the market is changing. Еhe market is ready to support only those projects, which has a real team, a real working prototype and proved (in real circumstances) business model.
Isn’t there a risk that investors will someday call on Ethereum to reset the blockchain if any one of these big ICOs gets hacked, like what happened with The DAO?
In this respect, it is quite difficult to predict anything. The ICO market was not yet sufficiently regulated, you can see by the stunning ups and downs. The market is subject to fluctuations and cryptocurrencies to volatility, which, of course, does not bring any stability at all.
I’ll add a huge positive factor of the cryptocurrency market – anonymity, which, unfortunately, sometimes becomes a real negative factor – it’s almost impossible to return the money or track cash flows, which got to the hands of unscrupulous people. Or frankly, scams.
However, our team has a fairly optimistic forecast of market development – technology is advancing and to hack any system (payment service, exchange platform) is becoming increasingly difficult. Another possible positive factor (which for many may seem to be negative one) – is the legalization of the ICO market. Let me remind you that the United States has already legal precedents related to the name of the ICO: many startups and companies have to use a different abbreviation – Token Launch, which is not contrary to existing legislation.
These are small but bright signals that the market is waiting for the change. We ourselves are waiting for the emergence of such market standards that would simplify the work of investors and owners of startups. And that would allow crowdfunding campaign to be held within the law and would not prevent scaling the business. But now it seems that we’re back in the days of the Wild West… )
What advice would you give to a developer that wants to get crowdfunding with an ICO but doesn’t know how?
First, you need to answer the question – what do you need money for? If you just want to become richer or not to work, this is clearly not the proper channel for attracting capital. Because, one way or another (if we assume to be working in the framework of some industry business ethics), the developer will have to develop the project, hire a team, regularly report to investors its milestones, launch a prototype or a beta/alpha version of a product and to develop the startup further.
My main advice is not to think about the ICO, but to think primarily about solving some urgent problem of the market and make a product that will be able to solve this problem more efficiently, faster and cheaper than other competitors. If a project doesn’t have a real problem to solve, the startup is just hot air, so it can raise money, but most likely it won’t have any future.
The project which was well thought out on the idea stage will most likely involve ICO specialists who are professionally engaged in this field. Now a unique specialization has appeared – startup hunters, whose task is to track the most interesting startups (and existing competitors), run them through complicated tools of analysis and forecasting to assess the possible startup success.
I’m sure if the project is good – such people will get in contact with its owner. However, I have to say, such projects are few and far between in the market… we receive several hundred applications, and we select from them a maximum of 1-2.
Another tip is to model the examples of already successful ICOs, and track new launches thoroughly. I will mention again – thoroughly examine the business model of other available projects, analyze the competence of members of their team, analyze press/media coverage and what is important – the history of the project development. It may seem ridiculous, but a tool like waybackmachine (archive.org) can do a lot to tell you about the startup and allow you to understand at what point the project decided to launch the ICO, and what the trigger was.
What advice would you give to investors looking to pick an ICO to trust?
I developed an assessment model for new startups. In a nutshell, it is quite simple – it is necessary to examine in detail the history of all team members and examine the projects that they ran before. It is also very important to look at the advisers board – usually, in perspective projects, you will mention well known experts of the market. And, of course, it’s important to assess the business model and understand the competitive field of this startup.
All this comes with experience, but that’s a conversation for a separate article. And of course, look at the escrow terms (it will help saving funds in case of failure of the project). And I will also add a proven platform, which runs ICO (everything is simple – you can evaluate the statistics of successful projects of this platform).