Flippening 2.0: Private funding to take over ICO sales?
AnalysisBit News Today2 min read
The line between traditional equity financing and ICOs is blurring, as investors shift their capital toward pre-sales and away from public offerings. Data shows ICOs raising almost 60% of their capital from private rounds in February, a trend that has led to the number of pure-play ICOs trending down. In April 2018, 129 ICOs closed for approximately $600 million, down from 215 sales that raised $1.2 billion in December 2017.
A New Era of Token Economics
Experts say this shift is driven by increased scrutiny from regulators, who are clamping down on public ICOs, and by a growing appetite for token exposure among venture funds and institutional investors.
Traditional investors are buying tokens outright through pre-sales, SAFT agreements, and regulatory-compliant offerings, which seemed improbable only months earlier. In other instances, traditional investors purchase equity stakes in blockchain enterprises ahead of an upcoming ICO.
Pre-sales can take many forms, most commonly the SAFT (Safe Agreement for Future Tokens), which acts as a forward contract for tokens that converts upon deployment of a functioning network. Token conversion can happen within one or two years later, providing quick liquidity to venture investors. SAFTs and certain pre-sales may even be a way to invest in tokens while still complying with asset class requirements, whereas buying through an exchange or public ICO likely would not qualify.
Some of the most notable examples of this trend include Telegram's $1.7 billion raised from 175 private investors in just two rounds, with no planned public sale. Basis, formerly Basecoin, raised $125 million from 225 investors through a SAFT sale launched late in the first quarter of 2018, and Terra secured $32 million in a seed round for its stablecoin project.
Securing capital from a small group of professional investors is much easier than managing a Telegram community of tens of thousands of people.
Institutional Funds Fuel the Shift
Traditional venture capital firms are establishing dedicated cryptocurrency funds.
When blockchain teams raised over $18 billion over the past year through ICOs, much of it was with little more than a white paper.
Many companies that released a token long before anyone can actually use it on the platform have seen the token price drop below its private sale price. The volatile, get-rich ICOs of 2017 have ended as crypto startups realize the advantages of taking capital from professional investors.
