There is a lot of confusion surrounding Token offerings, also known as Initial Coin Offerings (ICO) and Token price appreciation post listing.  Equally there is a lot of misunderstanding about equity markets and equity pricing by the market post listing. Based upon 25 years in the Equity markets and leading the world’s biggest IPO of $80 billion over a three-year period PLUS Bloomberg’s latest thoughts on the topic.

Here is a simple summary to remove some of the mystery and mis-representation.

COMPANY GOAL – TO RAISE FUNDS

  • The company sells equity to raise funds to grow their “late stage” business.

versus

  • The company sells tokens, to raise funds to grow their “seed-early stage” business e.g. in 2017 – 210 ICOs raised $3.9 billion

BUYER: GETS A CHANCE TO MAKE BIG MONEY QUICKLY BY GETTING IN EARLY

  • New growth Companies: e.g. the next Google, Facebook, Yahoo, Alibaba etc

versus

  • New crypto currency e.g the next Bitcoin, Ether & Ripple or next new utility tokens e.g Naga, Quione, & Powerledger

PRE-IPO FUNDING

  • Equity funding follows traditional seed, early and growth stage of traditional private equity funding stages

versus

  • Token Funding, By-passes Venture Capital and early stage PE – straight to main fund raising by selling Tokens

THE OFFER

  • The offer is to buy equity with voting rights and economic rights. Equity has no relationship to the day to day company operations.

versus

  • The offer is to buy Utility Tokens, with no voting or economic rights. The Tokens are the coin of exchange in buying the company’s services.

FURTHER OFFERINGS

  • A company can issue and offer more equity. A threat of secondary offerings, dilution and price erosion.

Versus

  • Token offering usually have a “hard cap” that is a fixed amount of Tokens issued and no further issuance.

LISTING & LIQUIDITY

  • One Local Stock Exchange often with low liquidity and price moved by small buy/sell orders. Limited to no research coverage.

Versus

  • Multiple Token Exchanges around the world, often with high liquidity and huge volatility. Informal social media research coverage.

POST LISTING – THE LINK OF PRICE TO COMPANY ACTIVITIES

  • Equity Issuing Company gets no benefit from the market equity price. Only if it uses a high share price for a secondary offering or M&A deal.

Versus

  • Token Issuing Company gets no benefit from the market Token price.

VALUE APPRECIATION

  • Equity price rises and falls based upon expectation of future: profit and cash flow and management execution plus investor relations

versus

  • Token price rises and falls based upon expectation of future: service & token use; management execution plus token relations

Sources and references

Compilation by Qualvin Advisory Ltd; Paul Zaman is an advisor for Equity markets, PE deals and Token Offerings in Asia and Australia.

Note 1: Coinschedule: https://www.coinschedule.com/stats.html?year=2017

Note 2: Bloomberg https://www.bloomberg.com/news/articles/2017-09-18/what-s-an-ico-like-an-ipo-but-with-digital-coins-quicktake-q-a ;

https://www.linkedin.com/in/paulzaman/