Due diligence is one of those things that everyone knows that they should do, but which few people do well. When it comes to ICO white papers, due diligence is critical, yet many people fail to confirm that the project in question is a legitimate one. This post will help you learn how to do due diligence on a white paper by exploring on of the most important aspect: the team.
What is Due Diligence?
First, a couple of definitions. There are a few different kinds of due diligence, including technical and legal due diligence.
- Technical due diligence essentially answers the question “Does the software work in the way that the project team claims it will work?”
- Legal due diligence addresses questions such as “Will these tokens be considered securities?”
- Organizational due diligence asks the question, “Does this organization have the resource necessary to accomplish their objectives and reach their vision?”. The team is a critical component of this, which is why we’ll be focusing on it today.
What should you look for? (My Process)
I want to see a section of the white paper that introduces the team members as a stand alone section. A lot of project teams will put team bios on the web site, but for some reason fail to include them in the white paper. This makes no sense to me: white papers are frequently passed around from prospective investor to prospective investor as a de facto offering memorandum.
Investors are too busy to hunt down web sites and verify project team members’ identities. Transparency is paramount in the cryptocurrency space, and excluding team members’ bios from the white paper raises questions where questions need not be raised. So, the first question anyone doing due diligence must ask himself is: Does the white paper include team bios?
The next thing that I screen for is team members’ social media presence. As I mentioned previously, transparency is important in the cryptocurrency community. If I can’t find team members’ social media profiles, or I see no evidence of engaging with the broader cryptocurrency community, then I have to wonder why the team is putting together an ICO.
Now, this doesn’t mean that team members have to be on every social media channel—there are dozens these days, and being on all of them would prevent the team from getting any actual work done. Including links to at least one or two social media channels per team member is useful.
Bottom line: I want to see evidence of project team members’ engagement with people outside of their own project. Project teams should make it easy for prospective investors to determine social proof.
Who are the project advisers?
Here, I want to see information about project’s advisers in the white paper, along with their bios, and, yes, links to their social media channels. This is important because, occasionally, unscrupulous project teams will assert that a certain famous name is an adviser to their project, only to have that famous name publicly state, often via Twitter, that they are not affiliated with the project.
Again, transparency matters: if advisors really are advisors, project teams should have no problem including that person’s name and links to his or her social media channels in the white paper itself.
An Example: Augmate’s White Paper
To make all of this a bit more concrete, consider Augmate’s white paper, available here: https://www.augmate.io/wp-content/uploads/2017/09/AC_Whitepaper_1tm.pdf. (Disclosure: I read a pre-release version of their white paper and provided them with extensive feedback, a lot of which they incorporated into this publicly available version.)
You’ll note that the section marked “Team” (page 17) has two things: (1) great summaries of the team members’ professional backgrounds, and (2) live links to the team members’ LinkedIn profiles. This makes it very easy for prospective investors to start digging into their backgrounds.
Further, on pages 19 and 20, you see profiles of their Board of Directors and Consultants & Advisors, again, with live links to these people’s LinkedIn profiles. For busy investors, this is great and user-friendly.
Bringing it all together
Once you’ve established that a white paper has (1) team members’ bios and (2) links to their social media feeds, then you can start assembling a kind of dossier on each team member. This dossier can address various questions that pertain to the team’s ability to execute:
- What is the team’s history and involvement with cryptocurrency and/or blockchain technology?
- What is the team’s history and involvement with whatever industry to which they’re applying cryptocurrency and blockchain technology?
- What is the team’s history with each other?
- The intuition here is that team members who have known each other for a year or more likely make a more stable team than team members who just met at a meetup last week.
Based on this, you can start to formulate whether the team has what it takes to build their product.
Thank you to Dave Friedman for writing today’s post. If you would like to read more of Dave’s work, you can find him on Quora here.