Daniel Malinovski
March 22, 2023
Investor Insight

How Simplicity Group conduct due diligence

Having conducted due diligence for a plethora of investors, we developed a systematic approach to researching pre-launched crypto projects and their potential. We focus on eight crucial elements that help determine a project's potential success from a business perspective: the idea, narrative, team, backers, financials, tokenomics, socials, and roadmap.

Details

Details: we dive into the project's details to understand how it works from a holistic perspective, and assess the potential impact the project could have on society. This includes understanding the narrative and seeing how the project fits into it.

Industry

Problem & Solution: we look for a clear problem and a well-articulated solution that the project aims to address. Most projects create solutions for non-existent problems.

USPs/ACAs: We look for the project's unique selling proposition and asymmetric competitive advantages. It's rare to find a project that actually has unique propositions.

Competition: We research the market landscape and assess how the project differentiates itself from its competition. Oftentimes there are a few competitors which already launched or at least have been building for some time, meaning a lot of new projects will be entering highly competitive markets.

SWOT: We analyze the project's strengths, weaknesses, opportunities, and threats, looking at anything from achievements to barriers to entry.

Team

Who are they: We find out the core team members and dive into who they are.

Experience: We assess the team's experience in overall space and particular industry their project is in, as well as their experience in launching and scaling projects. Being a new founder isn't a problem per se, but a lot of projects have founders with borderline zero experience in their industry, let alone business.

Social recognition: We evaluate the team's reputation and social standing within the industry. A lack of online presence can imply an introverted persona, however, oftentimes it implies spuriousness.

Background: We research the team's history and track record of integrity and ethical behaviour. Gaps in past employment history or general lack of online presence often indicate things like being involved in the ICO boom or other activity that would be considered red flags.

Backers

Partnerships: We research the project's strategic partnerships and assess their potential impact on the project's success. Regrettably, it's all too common to come across projects that merely list prominent corporations as their partners, only to discover the partnerships are fraudulent, or lack any real validity when improving prospects for the project.

Investors: We list and evaluate the quality and reputation of the project's investors, including any well-known venture capital firms or angel investors.

Launchpads: We list and assess the quality and reputation of the launchpads the project is using to launch its token sale. A little known fact is that many top tier launchpads prefer to work alone by filling entire public rounds, so a project listing multiple tier 1 LPads may pose questions of legitimacy.

Exchanges: We list and evaluate the potential exchanges where the project's token could be listed, be those centralised or decentralised.

Financials

Revenue Models: we evaluate the project's revenue models and assess their potential for generating sustainable revenue streams. A lot of crypto projects forget they're businesses, and just hope for the potentiality of selling tokens to fund operations.

Expected Revenues: we assess the claimed expected revenues. Nearly everyone states, "The existing companies in the industry make $N in revenue, so if we capture just 1% of that, we will make $N1%." This is arguably one of the worst ways to measure expected revenues because it is predicated on unevidenced, naïve expectations.

Fundraise: we look at the project's fundraising goals and evaluate whether they are realistic and achievable. Furthermore, the raise needs to be utilised with a clear strategy and plan.

Expenditure: we assess the project's expenditure plans and evaluate whether they are aligned with the project's goals and mission, whilst comparing it to average expenditures in the narrative.

Tokenomics

Token utility: we evaluate the project's token on the basis of its primary and secondary utilities, as well as work out where the main value accrual will come from.

Token economy: we assess the project's token economy to see if there is a cyclical flow of capital and whether there is sufficient balance between supply and demand. A lot of projects have way more sinks than injections. Tokenomics: we analyse the project's tokenomics, including the token supply, distribution, and emission schedule. This will include the initial market cap, token liquidity, and price deltas.

Valuations: we evaluate the project's valuation and assess whether it is reasonable and aligned with the project's potential.

Market Strategy

Market: we assess the market size and the project's go-to-market strategy to figure out whether it will achieve its goals and revenue projections.

Project Roadmap: we evaluate the project's development roadmap and assess whether it is realistic and achievable. Most projects have given their roadmap almost no thought, which shows a lack of future strategy, and therefore poses a risk to investor capital.

Execution: we evaluate the team's ability to execute on the roadmap and deliver on their promises. Most projects run behind schedule, but a lack of reason behind that indicates a merely underexperienced team.

Socials: we assess the project's social media channels, particularly Twitter, Telegram, and Discord. We look for active engagement and communication from the team, as well as a strong and supportive community in particular in the form of organic growth and engagement rather than purchased or fake followers.

The legal and technological aspects are also something that we look into on the surface, however, to be done properly takes much longer as we need to refer to our strategic partners for professional opinions.

Legal

We also assess whether the project has a legal foundation for launching their token in the particular jurisdiction they chose, as a lot of tokens are unregistered securities which makes them a risky long term investment.

Technological

We look into the technological side of the project to see if it the proposed solution is feasible in reality, whether it'll work as expected, and how efficient will it actually be compared to other options.


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