STEP 6 – Investors Have the Right to Know? Not in the ICO Business.
Even though I had to struggle through the process, participating in an ICO for the first time was quite exciting. But soon I was reminded of the fact that the investment wasn’t “real money” yet. While I didn’t invest much, I decided to check the conversations on the Kakao group chat room of the ICO project that I invested in to make sure that my investment was a good choice.
It occurred to me that I knew less about the company than I had thought. The staff members who were part of the group chat answered questions and led the conversation. It is common for a chatroom to continue late into the night.
Soon after I purchased the coins, investors began to react sensitively. This is because the 3rd pre-sale was postponed as well as the main sale. By listening to other investors, it became clear that the company initially had no plans to conduct the 3rd pre-sale. Investors demanded a clear explanation, but the staff members were unable to provide any. Most investors suspected that the pre-sale goal was not reached but the staff were unable to clarify that claim. Weak sales is enough to jeopardize the project’s competitiveness.
Investors demanded a disclosure of the amount of the funds raised and the staff responded by inviting investors to the company and hosting a meetup (a conference in which an ICO company explains its project and holds a Q&A session with investors).
At the meetup, the community manager introduced the project and discussed the development. Most participants weren’t investors. When asked about the pre-sale status, the staff explained that the total investment cannot be disclosed because the company had signed confidentiality agreements with investors.
Hearing that investors could be put to danger made me shy away from asking further questions. The company I invested in has built up a positive reputation by hosting various meetups and conferences and making effort to communicate with investors. However, it failed to clarify why it did not carry out the project as promised. It was disappointing that the company could not answer questions just because it signed confidentiality agreements.
The Korean government has proposed to ban ICOs, which means there are no regulations on them. That is why domestic companies establish overseas corporations to carry out ICO activities. In other words, investors are not protected by the law. I regretted investing in an ICO without a means to protect my rights.
My doubt grew further. Uploading pet photos and earning cryptocurrency no longer seemed like a sweet deal. I asked questions in the official group chatroom and received answers, but the delay of answers on pre-sale and roadmap led to investor complaints. I told myself to stop fussing but couldn’t shake off the bad feeling. The staff in the chatroom would repeat the story about the agreement with investors and the people who are likely staff members but did not identify themselves as being related to the company would pop out occasionally to distract investors by changing the subject or using emojis.
People invest in startups not just to further the development of the blockchain technology or form a transparent and healthy ecosystem. Many also participate in ICOs to garner profit through short-term investment. I for one looked forward to my coin rising in value in addition to earning money through continuing with my interest in pets in the form of social media activities. The reality, however, is that blockchain-based projects rarely succeed.
According to ICO consulting group Satis’ recent survey, out of the ICOs with market capitalizations of at least 50 million dollars (53.2 billion won), 81% were scams, 6% failed in business and 5% failed to get listed. This means only 8% succeed in entering the market.
Most of the success stories of investors who earned billions of wons of money are groundless. Conducting thorough research on the project you wish to invest in is extremely important.
A KPMG consultant said, “Cryptocurrency has its perks for being decentralized but on the flipside there’s no way of protecting investors,” adding, “ICOs, while similar to IPOs conducted by companies to raise funds, require a cautious approach as they have no regulation or protection. Unlike IPOs that are indirectly conducted by financial institutions or corporations, ICOs are independently conducted through blockchain technology. If carried out with malicious intent, investors are at risk of suffering financial damage.”
One ICO industry insider emphasized that venture capital firm is the most important factor in selecting a company. He explained that “An ICO backed by a prominent venture capital firm is guaranteed to have a competitive edge” and added that “While it is also important to check team members’ background, venture capital investment is another reliable way to confirm the project’s practicality.”