Our ICO MANIFESTO. - for INVESTORS

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1 Our ICO MANIFESTO - for - INVESTORS

2 Initial Public Offerings are broken. The IPO not to be confused with the ICO, or Initial Coin Offering is a way for the 1% to get richer, funded by the 99%, who don t know any better. With gambling, at least everyone knows the game is rigged. Walk into a casino, and we all know that over the long haul, you re going to lose money. IPOs are no different. The issuer and underwriter decide who is allocated initial shares in the IPO, which are typically favored customers of the underwriter (not the general public). The shares are purposely underpriced 1, meaning these favored customers can expect to quickly flip the shares for a profit. By the time ordinary investors can get in on the IPO, the shares have already been sold to people who don t know any better. The SEC actually encourages this behavior, stating, A firm may not sell to you IPO shares 2 3

3 unless it has determined the investment is suitable for you. 2 Initial Coin Offerings, or ICOs, are a way of leveling the playing field. So in the short term, IPOs do not make money for investors. The evidence shows that in the long term, IPOs also do not make money for investors.3 4 5

4 How ICOs Work You can think of ICOs as a new investment vehicle that sit at the intersection of a startup, a Kickstarter campaign, and a traditional IPO. To be clear, an ICO is none of those things, but it shares qualities with each of them. 6 7

5 ICOs are like startups: Investing in an ICO is most like investing in a startup, since there is typically no shipping product, just an idea. Investors should look at an ICO in the same way that a venture capitalist looks at a new investment opportunity: will this become a great company? VCs analyze the team, the idea, the market, and many other factors (and so do we). ICOs are like Kickstarter campaigns: To invest in an ICO is to provide funds for a new company or project to get started. You are paying up front on the team and idea. Like Kickstarter, the project requires enough momentum (i.e., investors) to get off the ground. Unlike Kickstarter, if it fails to launch, you probably won t get your money back. 8 9

6 ICOs are like a traditional IPO: While legally much different, an ICO typically buys you tokens, which may later be tradeable on token exchanges, with the value of the token rising and falling depending on market demand. In that sense, they are like shares of stock. Indeed, this is why many prospectors buy into ICOs, in the hope that they will be able to sell them at a quick profit. Unlike Initial Public Offerings, the average investor can hope to participate in Initial Coin Offerings. That is why they have become so wildly popular, with over $3.5 billion raised in ICOs in

7 Source: CoinSchedule.com How to Evaluate ICOs ICOs, like any investment, require due diligence. Like an initial pan for gold, there are three data points that can give us a first pass at the quality of an ICO. We call them the Three P s: People, Product, and PR. People. We look at the quality of the people behind the ICO. What is their track record, particularly in the blockchain space? Who are their advisors? What is the size of their network? Do they bring credibility and experience, or are they newbies jumping on the ICO bandwagon? 12 13

8 Consider the difference between investing in a restaurant idea from a seasoned owner of several fastfood franchises, and a restaurant idea dreamed up by a guy who works in accounting. While the accountant may succeed, the experienced restauranteur has a much better chance. Product. Does the team have a working prototype, or a Minimum Viable Product? Is the source code publicly available on Github? If there s no prototype, it s still just a wild idea. The team that has something anything is miles ahead of the team that has only a website and a white paper. As an example, one recent ICO was held for a new altcoin trading platform. The team consisted of a dozen developers who had built a fullyfunctioning prototype of the trading platform. Would you rather invest in that project, or the project based on nothing but a white paper? PR. We ve found an excellent early indicator of an ICO s success is the amount of press the team is able to generate. News stories, community engagement, and social media buzz all play a part. People need 14 15

9 to know about the ICO before they ll consider investing. We have found a positive correlation between the amount of pre-ico PR and the total amount raised. This makes logical sense, though it does not mean that heavily-hyped ICOs are a wise investment. We roll up the Three P s into our Bitcoin Market Journal QuickScore, which you can see on our Upcoming ICOs page at bitcoinmarketjournal.com. Our ICO Assessment Model Like finding traces of gold in a riverbed, the BMJ QuickScore reveals where to start digging. When we think there might be gold (i.e., a promising ICO), we break out the shovels and go to work. We take each Initial Coin Offering through our ICO Assessment Model, which is based on the Timmons Model. Developed by Jeffry Timmons, the father of entrepreneurship, this model was created as part of his doctoral thesis at Harvard and refined during his tenure at Babson College

10 The Timmons model helps predict whether an entrepreneurial idea will be successful, based on the team, market, and opportunity. We ve tweaked the Timmons Model to include blockchainspecific criteria, such as token distribution and decentralization. We rate promising ICOs based on factors like: Market and margins Economics Competitive advantage Founding team Token structure Startup strategy Exit strategy Using these categories, we gather roughly 50 data points, combining them into two overall metrics: Short-Term Potential: is a buy and sell strategy likely to be profitable? Long-Term Potential: is a buy and hold strategy likely to be profitable? We make our findings available each day on our investment website Bitcoin Market Journal

11 Are ICOs a Bubble? To be sure, there is wild mania surrounding ICOs, with dubious ideas raising millions of dollars. But is it any more dubious than the IPO for Snapchat, a wildly popular public offering for a company that still struggles to make a profit? There are well-publicized cases of ICOs where founders have simply walked off with investors money. Is it any different from CEOs destroying millions of dollars of shareholder value through ill-advised acquisitions, 5 poor governance, 6 stock buybacks, 7 and corrupt executive teams? While some argue there is a difference between investing and speculation, most would agree that it is a continuum, with investing on one side and speculation on the other. Some IPOs could be considered speculative, while some ICOs could be considered long-term investments

12 The goal of all investors should be to find great investments. The goal of the government should be to allow all investors to participate in those investments. The system is broken, which is why the price of cryptocurrencies and ICOs are reaching stratospheric heights. But wise investors will realize that the difference between investment and speculation comes down to this: great investments are driven by great companies. A Passion for Great Companies We re passionate about building better businesses. Since 1995, our parent company Media Shower has been helping entrepreneurs, finance companies, and technology startups succeed. And in the process, we ve built a great company ourselves. Identifying great investments is all about finding great and potentially great companies. Out of the hundreds of ICOs launching every month, only a handful meet our criteria of greatness

13 By great, we don t just mean big. Great companies are companies with great values. They have a philosophy, a shared ethos that s lived out among their employees, with purpose and passion. Great companies can do great things: large teams working toward a common goal are mighty engines that can transform society. They can transform their employees as well, improving their lives physically, mentally, and spiritually. Great companies grow the global economy, grow new jobs, and grow the human spirit. As investors, these are the companies we re after. ICOs help create these great companies, far more efficiently than any fundraising method in history. This is why we re so excited about Initial Coin Offerings: no matter what comes next, the best is yet to come

14 Our Investing Manifesto Anyone can use their money to do positive things in the world. Helping businesses succeed businesses that we believe in is a positive way for investors to use their money for good. In the world of Old Finance, investing in a company that you love like Amazon or Apple is like saying, I believe in what you re doing. I want to be a part of it. Those companies use your money to create more jobs, more products, more value. That s using your money to better the world. In the world of New Finance, investing in a promising digital asset or ICO is helping this new financial ecosystem thrive. When you invest with this mindset, you re investing in a better world. We believe in actively seeking out value. Warren Buffett has advised, Find an outstanding company at a sensible price. We add to that, Find an outstanding team and technology at a sensible price

15 We believe in investing for the long term. If you really believe in a company, stick with it. Spartans hold. We believe in making a limited number of large investments, not a lot of small ones. Charlie Munger says to imagine you only get to make 20 investments over your entire life. Choose wisely. At the same time, we believe in diversification not just among bitcoin-related investments, but among all our investments. We don t put our lunch money into the next hot trend (you can t eat bitcoin). We believe in disciplined investing. Put aside money every month to invest. Do your research. Stick with your convictions, even when the rest of the market is manicdepressive. We don t invest more than we re willing to lose. This era is like the early days of the internet, with tremendous hype and irrational behavior. Many 28 29

16 companies will not succeed. Caveat emptor. We accept some loss as part of the process, seeing it as tuition paid." In this new world, we learn from failure, but we still try to keep our educational expenses to a minimum (scholarships are available). Finally, we have fun! For smart investors, this is one of the most exciting times to be alive. Join us by subscribing to our free newsletter: Endnotes 1 Khurshed, Arif. "Initial Public Offerings: An Analysis of the Listing Contracts and the Post-IPO Performance of the UK Firms," U.S. Securities and Exchange Commission, "Initial Public Offerings: Eligibility To Get Shares at Broker-Dealers," 3 Khurshed, Arif. "Initial Public Offerings: The Mechanics and Performance of IPOs," p "Cryptocurrency ICO Stats 2017," coinschedule.com/stats.php 5 "Big Firms Lose Value in Acquisitions," National Bureau of Economic Research, org/digest/aug03/w9523.html 6 "Too Much SOX Can Kill You; Resolving the Compliance Paradox," Booz Allen, "Goldman Sachs to Companies: Stop Buying Back Your Stock", news/articles/ /goldman-sachs-to-companies-stop-buying-back-your-stock Disclaimer: Bitcoin Market Journal does not provide legal, tax, accounting, or investment services. Since each individual s situation is unique, you should consult a qualified professional before making financial decisions. You should not invest in bitcoin or any other investment, unless you are prepared to sustain a total loss of the money you have invested, plus commissions and other transaction charges

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