When researching a new ICO, one of the factors to be considered is the quality of the advisory team the management team assembled. Typically subject matter experts or financial professionals, these advisors provide the support and intellectual underpinnings needed by the ICO's management to successfully launch the ICO and manage the resulting project.
ICOs are typically weighed on the gravitas of the advisory board. A well-established, diverse advisory board can cover for shortcomings in the management team or in the presentation. However, is this fair? Can an ICO be truly measured by its advisors and what should you look for when looking at an ICO's advisors?
How Advisors Affect ICO Outcomes
To show what advisors can mean for an ICO, here are three examples of when advisors failed their ICOs:
- Inchain. Inchain, an insurance-based bonds investment platform, ran its ICO from October 26 to November 26, 2016, raising 57.972 BTC. Failing to raise its minimum funding target, it was forced to refund monies to all ICO participants and cancel the ICO. The ICO showed significant problems, including no proof-of-concept for an unfamiliar concept, no investor protections, and limited management experience. Inchain listed two business advisors on its whitepaper: the founder of an investment solutions provider and the head of the finance team for an insurance firm. There was nothing to suggest that Inchain or its team had enough knowledge to successfully manage the ICO or the resulting business; this oversight did not escape the notice of the ICO community.
- ARK. ARK was announced to a lot of positive buzz. An arching protocol to interconnect blockchains and allow for services that use non-native tokens bore the potential of completely rewriting what an altcoin is. However, with no clear proof-of-concept, unready technical claims, and lopsided early participation bonuses, ARK was able to raise 6,034,853 LSKs, but only 132 BTCs. ARK's use of co-founders and developers as advisors formed a closed circle, where no new ideas could come in and where there was no real sense of discussion which could have yielded a more positive result.
- Kibo Lottery. Allegations of the management and advisory teams being involved in previous scams sunk Kibo Lottery, a decentralized lottery without the government-sharing scheme state-based lotteries have. Even though Kibo Lottery raised 290,000 ETH, questions of whether the team even understood the randomization technology that was the heart of their platform eventually painted the ICO as a likely scam.
What Is the Role of an ICO Advisor?
The best way to think of an ICO advisor is as a guide. Similar to a business consultant who takes a rough idea and forges it into a working business plan, an ICO advisor takes an idea for an ICO, categorizes the management's skillset, determines where holes exist, and develops a roadmap for the crowdsale, proof-of-concept, and production. This may entail bringing in specialists and consultants to resolve the shortcomings in the management team.
The best advisors have a longstanding relationship with the ICO's managers. It may be that they worked together on other teams, have an academic relationship, or it may be that the potential advisors are early investors in the project.
To evaluate an ICO's advisors, the first step is to try to make sense of the ICO's advising strategy. Ask yourself: "If I were starting this ICO with this management team, would these be the advisors I would choose?"
Many ICOs offer extensive bonuses to advisors. This has spawned a market of hired guns or "off-the-shelf" advisors, where ICOs lacking the time or professional connections to form an advisory team on their own can sign up with a third-party advisory provider. Among these companies are the Aragon Group and the Vanbex Group.
Such advisors, while certainly better than having no advisors at all, have no true stakes in the ICO beyond financial considerations. This may suggest an ICO that is being positioned for market entry instead of production. It may also suggest that an ICO is using advisors to market the idea, instead of using them as an internal asset.
Questions to Ask
When vetting advisors, you should:
- Google the advisors and check their LinkedIn pages. An advisor should have work experience and education commensurate with the advisory role expected of him or her.
- Check the companies for which the advisors currently work. Do they have a financial or ownership stake in the ICO's intellectual property? Do the advisors work for consultancy groups? If so, do the consultancy groups have a good track record?
- Find out how many times the advisor in question has advised ICOs in the past. You may have reason to be concerned about an advisor's freshman effort, but an advisor that has a long ICO advisory resume may be a hired gun.
- Consider whether the advisory board makes sense. If an ICO managed by recent college graduates, for example, only has technical advisors, you may be justified in asking where the managing board is getting its leadership or legal advice. Likewise, a lack of technical advisors may show an overconfidence in the management team's capabilities.
- Ask "Is this ICO using advisors to cover a bad idea?" Similar to the notion that an elaborate story typically covers a lie, a large and impressive-looking advisory board may be distracting from structural failings in the ICO's concept, management, or intentions. The reality is that most ICOs use advisors to give their projects more recognition and to improve their positions when the ICO begins. It is important to recognize when an advisor is just a prop.
There is no question that research and due diligence is key when you are contemplating an ICO investment. For more information, read Bitcoin Market Journal and learn to invest like a pro!