ICOs were supposed to be IPOs without the Wall Street middlemen and Washington meddling. Now they’re looking a bit less revolutionary.
Initial coin offerings have raised $18 billion for blockchain startups this year, almost five times last year’s total, according to CoinSchedule. But unlike 2017, this is increasingly due to blockbuster sales that targeted accredited (read: wealthy) investors instead of just anyone with an internet connection. Telegram raised $1.7 billion that way, reportedly prompting it to scrap a public sale. Among the 10 largest ICOs this year ranked by CoinSchedule are Tatatu’s $575 million sale and Basis’s $133 million one — all conducted through private rounds.
As regulatory scrutiny intensifies, many startups are finding it simply easier to raise money from private investors, whose interest in digital assets has also grown. This has made cryptocurrencies a little less like the Wild West and more like traditional venture investing — a trend that, depending on who you ask, either means the business is growing up or selling out.
First, regulators worldwide became more vigilant about policing fraud in ICOs and the evasion of registration requirements for securities offerings, which they say many token sales resemble. This means many ICO issuers who want to comply opt to pay lawyers to navigate the regulatory minefield, making a public sale much more expensive. A compliant and far easier way to sell tokens is just to offer them to accredited investors, which in the U.S. can be exempt from registration.
At the same time, the ICO boom also drew increasing attention from institutional investors including venture capitalists, family offices and crypto hedge funds, making it easier to raise enough funds just by tapping that pool. About 18 percent of funds raised in ICOs this year were exclusively through private sales, and 37 percent of offerings also conducted private pre-sales, CoinSchedule data show.
Source: Bloomberg
