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.
- 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
- New crypto currency e.g the next Bitcoin, Ether & Ripple or next new utility tokens e.g Naga, Quione, & Powerledger
- Equity funding follows traditional seed, early and growth stage of traditional private equity funding stages
- Token Funding, By-passes Venture Capital and early stage PE – straight to main fund raising by selling Tokens
- The offer is to buy equity with voting rights and economic rights. Equity has no relationship to the day to day company operations.
- 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.
- A company can issue and offer more equity. A threat of secondary offerings, dilution and price erosion.
- 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.
- 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.
- Token Issuing Company gets no benefit from the market Token price.
- Equity price rises and falls based upon expectation of future: profit and cash flow and management execution plus investor relations
- 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