Initial Coin Offerings or crowdsales have become the most popular method of raising funds in the past couple of months. Almost every other day there is some news about a project raising millions of dollars in matter of few minutes. This year alone, the cryptocurrency ecosystem saw some major fundraising efforts which include ICONOMI, FirstBlood, KIBO, SingularDTV and many others.

However, question arises about the authenticity of these projects and their potential to generate revenue in the future.

Rik Willard, Founder & Managing Director of Agentic Group LLC., believes that ICOs are most definitely here to stay and will help fund those models and processes that are natively digital, particularly those which are largely distributed and/or decentralized.

“I am unsure that we will see massive crowdsales such as the DAO in the near future, but in the case of relatively smaller raises such as FirstBlood (nearly $6 million within 5 minutes) or Singular DTV ($15 million in 15 minutes). Rather than clamoring for "shares," the public is realizing that more direct value is the organizing factor behind ICOs. These shares will judge value according to the dictates of a "flattened" Internet as opposed to the traditionally hierarchal system of value gatekeeping. We will absolutely see more of this”, he said.

Steven Nerayoff, Esq. LL.M., Lisk Advisor, Ethereum Senior Advisor, CEO of Cloudparc, also believes in the ICO vehicle, but added that any vehicle is only as good as the actors using it.

“Bad actors can also take advantage of ICOs, and as a result investors must perform due diligence when investing on ICOs. As a venture capitalist that looks at early-stage companies, I see some similarities that organizations putting together an ICO share with young companies seeking traditional capital”, he said.

Shidan Gouran, Angel Investor, CEO of Gulf Pearl Ltd. & Home Jinni Inc., did not mince his words when he said:

“I would agree that the FirstBlood and Kibocrowdsales are very questionable. SingularDTV’s is less talked about in a negative light, but I do find it questionable and I have deep concerns that their ICO might amount to an illegal securities offering. I wouldn’t be surprised if a case would be made that there are buyers who could face potential for economic loss and I don’t think it would be hard to show a common enterprise, nor a reasonable expectation for profit.”

To that end, Gouran pointed out the loopholes in SingularDTV’s legal contract and said that everything about its ICO is baffling for him. He said:

“[I]t should be noted, their terms of sale are the very first, supposed “legal contract” I have ever seen that doesn't identify who the other party is. The following is the closest “they” get in identifying who the agreement is with -- "The User understands and accepts that in order to create the S-DTV platform and its utilities, the development and execution of the CODE Smart Project will be assigned to a third party contractor, SingularDTV GmbH (to be founded), domiciled in Switzerland (acting as the Workshop). The Workshop has the right to engage subcontractors to perform the entire or partial development and execution of the S-DTV Projects."

“So yes, based on these three ICOs, I do feel that we are still in the crypto wild-west.”

Gouran further said that he didn’t participate in Synero’s recent crowdsale, but he did invest in their ICO and have remained very bullish of this project. With regard to Iconomi, he said that although refrained from participating in its ICO, he wouldn’t rule out future possibility.

“I disagree with Nick Tomaino regarding Iconomi because I think the project is being singled out unfairly”, he said. “They have defined a sane legal structure and their high level view, even though it's fairly sparse on details, is sound. However, I do believe more information or proof needs be delivered before risking an investment makes sense.”

Checklist for investing in ICO

Nerayoff listed the various points which investors should keep in mind before they decide to invest in a project. These include:

Background of the team: He explains that investors should consider both skill and integrity of the team behind a project and added, “One must take extra care to research who they are investing in by whatever means are available, up to and including background checks. This can be difficult to do with a foundation in an ICO, where the principals may belocated halfway around the world.”

Scope of ICO: Nerayoff emphasizes that an investor must make a determination on the scope and problem that an ICO is seeking to solve, adding “A business must fulfill a need in society, and ICOs are no different.”

Timeframe: He said that investors should assess how long it will take for the organization to solve the problem they’ve set out to, and once they’ve entered the market, how long it will take for them to sufficiently capture enough to make investment worthwhile.

“Once I feel comfortable in those three areas, it then comes down to the question of whether or not the ICO is selling at an appropriate valuation. Interestingly, what I’ve found is that most ICOs are underpriced, similar to how many IPOs are set up by investment banks”, Nerayoff added.

Gouran advises investors to invest in tokens that, first and foremost, serve a concrete and useful purpose in an application. He said:

“I personally, stay away from token sales that amount to a selling of securities or derivatives/bets, unless, for the former, it is a security essentially issued by the network majority (the ultimate co-op) and for, the latter, a bet/derivative where the middle-man or casino is, again, the network majority. I have no issues with developers of such apps retaining a reasonable number of initial tokens or doing a reasonable ICO as a funding model, as long as control of the system and its economy, ultimately sits with the network majority.”