> The problem is that you're giving money to a relatively unknown company while speculating that the company will create inherent value.
That's what seed round VCs or angels do. Sure, they tend to invest only in peeps they know personally or through their network to try and control for too much failure. But the same could be done for ICOs...only invest in those that have teams you know well, or can meet, or who will take your call and answer your questions.
>Unlike with stocks, you don't have ownership in the company or any voting rights.
Same thing happens in VC rounds as later round investors dictate terms and dilution to early round investors.
> There is nothing stopping the company's creators from distributing the ... money to themselves
Same thing with VC money...one can hire friends, acquire companies one might have stock in already, buy a swanky office, go on lavish company parties, etc.
> there might be a board, but since the company isn't public who knows who the board is
Verbatim for VC-backed private companies. The "who knows" depends on the due diligence of the investor. Sure, most professional VCs will define who the board is ie. require board seats. But those boards can and do change in later rounds. It's up to the ICO investor to do due diligence. There's no law for ICOs that I cannot email or call the founders and ask about their board. If they refuse to answer, that would be a huge red flag.
All that said, I completely agree: > the SEC is right to step in so there aren't a ton of unregulated securities going around and a lot of consumers potentially getting screwed.
Most retail investors cannot possibly spend the time and effort and money to do proper due diligence regardless of whether it is an ICO, IPO, OTC stock, etc. Most mom-and-pop investors should just buy ETFs with zero fees. Schwab has some great examples!
For professional investors...I think ICOs are a fantastic tool that adds competition to the marketplace...and should scare the hell out of VCs and PE since the days of 2 and 20 without question seem fleeting.
EDIT: formatting