When you buy a car, you keep in mind the problem of transportation that it will solve. You will look for the availability of spare parts and a good reliable mechanic who can work on that car. Same is the case with potential investors wanting to invest in a startup that is using blockchain to provide an answer to its customers’ problems.
Is the Blockchain Business Really Legit?
This is to see if the business really is legit in its traditional sense (not a scam). Has the business defined clearly what problem it is looking to solve? The problem is not blockchain, it is something that is completely different; like a pain point of an industry. It doesn’t have any mentions of blockchain. If the business is just looking to sell out with no basis, it will be apparent with their lack of “real-problem.”
The pain point or problem that is needed to be solved should be significant enough that the customers would want to pay for it to be solved. Is the amount of payment going to be enough to cover the costs of delivering the solution (on a larger scale, if needed, in the future)?
An example of a sell-out company might be one that has blockchain in the problem itself. It -simply cannot be the solution. If the problem statement is “how to use blockchain to ease global commerce,” the business won’t survive as its model has an inherent weakness. That weakness is the lack of a problem. People don’t want to use the blockchain, they want to solve complex business problems that are too expensive or unable to be solved with the existing methods.
The next thing to gauge is if blockchain technology really solves it. Is the team of people at the company qualified and competent enough to solve the problem it has suggested? The problem that the blockchain service provider has explained should be solved by the blockchain and blockchain alone.
It should be the only viable way to overcome the problem. If there are other ways to solve problems, these approaches shouldn’t yield better results for the problem than the blockchain method. If it does, then it means that the business is a failure. Blockchain is still under “careful observation” and the investors could go with a more tried and tested approach that works, being offered by another company.
Beware The Empty Network
The nature of distributed ledgers is such that in order for it to be successful, there needs to be enough people on board. Unless the business blockchain network has a legitimate and high number of people who are willing to use it as a solution after passing legitimacy, you should not invest. Never invest in an empty blockchain network.
But even after this criterion is met, you still need to be careful. People may come on board for the time being to support a cause. As soon as the tension subsides (enough funds are gathered from the ICO), they opt out of the solution and there goes your viability. So you need to be careful that this is not the case.
Go for a company you have done your background research on before you invest.