Blockchain Technology is clearly going to create some very profitable, great new businesses—but most of the Initial Coin Offerings coming out now are for businesses with little to no chance of success
Ethereum and many great ICOs have been funded, but there are clear Ponzi schemes and many proposed businesses that look legitimate, but upon further investigation prove to be impossible schemes that will clearly fail.
While getting outside due diligence is wise for any investment, it is especially important for an Initial Coin Offering since there is no regulatory review and the “white papers” issued by ICOs usually have little to no financial information, no discussion of competition, and of course, sales puffery.
ICO due diligence is also more important and difficult because there are two very different, important parts of valuing an ICO. First you need a traditional valuation of the proposed business including likely sales, expenses, profits and growth potential. But ICOs also require an estimation, especially uncertain, of the value of the token which may have high speculative investment value. In the long run, no good business proposition means the ICO token will eventually decline to no value—but it may have a good run up in price given the enthusiasm for some interesting, well marketed ICOs and enthusiastic investors.