There is huge demand for crypto companies to go public right now — but in this day and age, are initial public offerings their only option?
One company that has been in the process of completing a Reg A token sale is Exodus.
Exodus — which offers desktop, mobile and hardware crypto wallets — said that it wanted to pursue this approach to ensure that its users had equal access to equity as venture capital firms and crypto whales.
The company’s stock was listed at a price of $27.42 a share, and was available directly through the Exodus wallet in exchange for Bitcoin, Ether or the USDC stablecoin. It was also available exclusively in the U.S., barring three states.
In a recent ask-me-anything session on Cointelegraph’s YouTube page, Exodus CEO JP Richardson described the Reg A token sale as a “proof of concept to show the world that this is possible” — and suggested that other companies could be invited to perform their own token sales within its platform in the future.
“We see that as an inevitable future in that all traditional assets, whether it's stocks, bonds, mortgages, currencies… now will make their way to the blockchain,” Richardson added.
Approved by the U.S. Securities and Exchange Commission, Exodus raised $59 million in just five days.
On May 5, it was confirmed that the token sale had sold out — with Exodus claiming it was the first company to have a public offering that was for crypto only, digitally represented on the blockchain, and 100% in a self-custodial platform.
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As the pros and cons column above suggests, the road to going public isn’t an easy one.
SPACs can end up going wrong if a company that wishes to go public ends up picking the wrong sponsor. Meanwhile, businesses that go through the rigmarole of completing an IPO can end up finding that they’re not ready to hit the primetime — and are unaccustomed to the burdens associated with being a public company, including the quarterly disclosure of earnings.
Direct listings can leave early investors in companies disgruntled, because they may be expected to offload some of their shares so they can enter into public circulation. And although the absence of a lock-up period is certainly enticing, executives can end up being criticized if they sell shares immediately after a listing takes place. (Coinbase insiders were accused of dumping tokens after its listing, but one of the exchange’s representatives told Coinbase at the time that all sellers maintained strong ownership positions.)
A challenge with Reg A token sales lies in how only a few have been approved to date, and success in this area can depend on picking the right lawyers.
Yes — especially now Coinbase has broken new ground by joining the Nasdaq.
It’s fair to say that a number of rival exchanges were watching Coinbase’s journey with great interest. As we mentioned, eToro is now following suit — and Kraken may be preparing to go public next year. Binance, the world’s biggest exchange, appears to be holding firm in its determination to remain a private company.
Tech companies going public have been a major area of focus in the equity markets, especially over the past two years or so, and this is evidenced by the strong performance of the tech-heavy Nasdaq. When it comes to crypto companies specifically, investors may be drawn to purchasing shares because of how it gives them indirect exposure to fluctuations in the crypto markets.
Growing interest in the potential that cryptocurrencies have — as a payment method, as a store of value and as a compelling alternative to fiat — have also led some analysts to expect substantial growth in the years to come. Already, Mastercard has announced that it will enable its customers to pay with digital assets if they wish, and PayPal’s crypto service is being gradually rolled out around the world. This forms part of an argument that investing in publicly listed exchanges now could be like getting on the ground floor of major tech giants such as Facebook, Amazon and Google.
Each method can attract downsides, meaning companies need to think about their top priorities.
While IPOs typically generate box-office proceeds, in part due to how they have the credibility of an underwriting bank, the regulatory requirements that companies need to meet is often high. Investment banks are required to underwrite and participate in the IPO, and this can result in a hefty tab at the end of the drawn-out procedure.
As you’d imagine, all of this has led to direct listings becoming a popular alternative. No new shares are created as part of this process. Instead, existing stock is sold to the public — and no lock-up restrictions are in place. This prevents existing shareholders from being diluted, but funds only end up being raised when current stock is sold.
SPACs can be faster and cheaper — enabling companies to hit the stock market faster. Although this creates greater levels of certainty for shareholders and potentially less volatility than an IPO, retail investors can be put at risk because of how a SPAC’s sponsors take on significant equity at low cost.
And then there are Reg A token sales. Because traditional financial entities do not need to be involved, this enables everyday investors to gain exposure at earlier stages within a company. But this isn’t without legal costs — and an upper cap of $75 million exists when it comes to new funds being raised.
Initial public offerings used to be the most common method for businesses that wanted to make a stock market debut — but things are changing.
Of course, IPOs remain hugely popular. According to PwC, there were 727 IPOs around the world in the first quarter of 2021 — bringing in proceedings of $202.9 billion. That’s 60% of the funds that were raised across the whole of 2020… in just a three-month period.
There are downsides to pursuing an IPO. Not only are these offerings incredibly expensive for the companies that pursue them, but lock-up periods mean executives and early investors who already have shares cannot sell them for up to 180 days.
This has prompted the likes of Coinbase to seek alternatives such as a direct listing — a method that has become favored by a number of tech brands including Spotify and Slack.
Other potential routes include big brands merging with a special-purpose acquisition company, known as a SPAC for short. This has been the approach taken by the crypto-friendly trading platform eToro as it gears up for a $10 billion listing.
Reg A token sales, which results in securities being publicly traded, can also be considered.