There have been a recent flurry of ICO announcements with huge amounts of funds and money being thrown around. In some cases for good use and in some cases directly to fund pump & dump schemes or worse, to fund very shady and potentially illegal get rich schemes for the founders.
There is a growing awareness that also Ethereum ICOs/investments/crowdsales needs to be evaluated sanely and to do my part I will start a series of posts that goes through the currently announced projects and evaluates then from my viewpoint. This could of course be done much more diligently, but I will try to keep it short and informative enough to highlight the main points of each question.
I will score each of the below categories from 0 to 5, with 3 being neutral in the eyes of the investor. Below 3 is bad for the investor and above 3 is good for the investor (and could be good for the project as well).
Project: Kibo Lottery
Kibo aims to be a global lottery platform, available on a number of platforms and in a number of languages. A key part of the platform will be affiliate marketing by Kibo platform members.
Do these guys have what it takes to succeed as entrepreneurs? Track record and previous projects? Experience and formal education?
Neither on the web site or in the white paper there is any information about the team or the team size. This is very unfortunate and a serious warning flag as the team is the single most important factor for a successful product.
Market Potential 4/5
Obviously huge. They state that over 30 % of the worlds online gambling market ($85 billion) is in lotteries and I have no reason to believe this isn't in the right ballpark. The follow up question is of course how many of current global online gambling participants are savvy enough to handle an Ethereum based system? Not so many but the numbers will grow.
This is also a great showcase market for smart contracts and Ethereum technology.
Product/Business/Operating Plan 1/5
Proof of concept available? How many iterations are done? MVP available? Is the product validated by outside users? 1/5
This is not clear. The lotto product is clearly not developed yet, but they mention user tests with the marketing tool.
What is the current operating plan and why do they need funding now? 1/5
According to information on the website, they already have funding of 94538 ETH etherscan. At current eth prices this is around 1.2 million USD. The only clear motivation given for the ICO is to get funds for marketing (45 %), Development and Operating Expenses (40 %) and Contingencies (15 %).
From the Kibo website:
Funds received from the token sale will be used primarily for marketing purposes, including the formation of the prize fund that will be drawn within the series of free draws, which will be launched when the KIBO LOTTO platform starts. Also for further platform development – including the upcoming update, development and design of new user interfaces, technical implementation, testing and contract optimization.
The funds will also be directed at expanding the team and for remuneration of Kibo employees, administrative and logistics costs, legal fees and operating expenses for current and future challenges aimed at the effective development of the KIBO LOTTO platform
They give no motivation for why the ICO money is needed at this stage other that to give away in free prizes, which is very bad. The current cash reserves of 1.2 million USD should be able to take them very far in terms of providing a Proof of Concept product, MVP and then the final product to launch.
What is the go-to market strategy? 4/5
They have a well thought out strategy for viral and affiliate marketing, giving economic incentives for participants to recruit new particpants in a giant pyramid a la Tupperware.
This is the roadmap from the published white paper:
The launch of the KIBO platform will take place in the following stages: 1. BTC: Launch of the lottery on Bitcoin, Presale.
2. Start: Implementation of work on Ethereum franchisee account contracts,
two lotteries. Start of token sales. 3. Go: Start of two additional lotteries
4. Work: System market launch, fixing of contracts.
5. GUI: Decentralization of lottery user interface (Mist)
This is a very vague roadmap and does not give any expectations on when the platform is ready for launch. They are also planning to launch without providing Proof of Concepts, MVPs and a launch of the platform on the testnet.
The website has another roadmap that states
KIBOLOTTO Platform Launch Winter 2016
Do they have a clear view of the competition? How do they plan to beat them?
There is no mention of competition on the website or in the whitepaper which is very bad. Even if they are in a god spot within the crypto space as the first lotto, they will still have to deal and compete with the old world lottos.
Is valuation sane? 0/5
100 000 000 Kibo tokens will be distributed in an ICO sale. The cost of each token is set to:
First 5 days 50 KIBIT/1ETH
Next 5 days 40 KIBIT/1ETH
Next 10 days 35 KIBIT/1ETH
Next 10 days 30 KIBIT/1ETH
Next 10 days 25 KIBIT/1ETH
At 50 Kibit per ETH, at current prices, they've valued the ICO to at least ~$26,000,000.
Any unsold tokens will be gifted to the founding team. No matter how much is raised the project will launch reddit post
This kind of valuation for a non existing product seems totally crazy, even if there is a huge market potential.
What is the exit potential and exit options? 2/5
Nothing is said about exit strategies, but it can be assumed the tokens will be traded on exchanges.
However, there is no mechanism for an investor to get out of the investment before the tokens are listed and tradeable which is a huge minus.
As an investor? 0/5
This is clearly mark as an ICO and the KIBIT token is named as an investment in the white paper, which will with all probability qualify this as an security by the SEC in the US. This in turn means that US investors should be very careful with investing as it potentially can give them future legal problems in the US.
The founders also put a legal risk in the US on themselves if they ever would like to go or visit there.
Legality of the business 0/5
This is a special case for Kibo. Online gambling is regulated in most parts of the world. In the US it is mostly prohibited and in the EU it is regulated and you need a valid license in at least one of the member states.
Promoting and marketing an online gambling product in one of these places without proper license does not only put a large risk on the founders of the company, but also on each individual token holder that participate in any kind of marketing or promotion.
THIS IS A HUGE RISK AND SHOULD BE SERIOUSLY CONSIDERED BY ANYONE INTERESTED IN THIS ICO
How long has an operational proof of concept been live on the testnet (Morden)? 0/5
Proof of external security evaluation? 0/5
Special security needs for this project? 0/5
In any gambling related project the random number generator used is of the utmost importance. They have published code snippets in the white paper, but I have not seen anyone reputable discussing or approving this method for random number generation.
As been shown by virtually all large Ethereum projects so far, Ethereum security is very hard. You have to get it right the first time, and without previous work to fall back on and working prototypes on the test net there is no guarantee what so ever that the development team can produce secure code.
There you have it, a long post but one that I hope highlight some important points. Personally I would never go near this project. Totally failing the singe most important point (the founding team), handing over a huge legal risk to its participants and providing no Ethereum specific security confidence makes is the main points for me.