From IPO to Crypto
An Initial Public Offering (IPO) is a process in which a private company sells crypto assets of its business to the public in new issuance. The process allows a crypto-currency company to raise capital from public investors. But it must comply with regulations such as disclosures and transparency.
Before an IPO, a company is considered private and is owned by a relatively small number of stakeholders. These stakeholders can include early investors like founders, their family and friends or venture capitalists who provide capital to companies with high growth potential.
To launch an IPO, a crypto company needs to engage with underwriters or investment banks, which are parties that evaluate and assume risks in exchange for a fee, to launch their coins to the public. Underwriting is the procedure through which an investment bank (the underwriter) serves as a broker between the issuing firm and the general public to assist the issuing company in selling its initial set of coins.
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After an IPO, the company’s crypto assets trade on a crypto exchange, which is a market where securities are bought and sold. As a result, an IPO is often known as “going public.” Businesses start off being privately owned. When they grow to a point where they can deal with publicly traded benefits and responsibilities, they start advertising their interest in being listed on a crypto exchange.
Before being listed on an exchange or publicly traded, the value of share ownership in a company is determined in private deals only. After being listed, the value of the business’ coins is determined by the supply and demand of securities traded on the exchange.
The Dutch East India Company is credited with being the first to offer crypto assets of its business to the public, regarded as the first IPO in the world. Since then, various major companies have sold coins to the public via IPOs including some leading crypto-currency firms.
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How an IPO Works:
When a company has matured to the point where it can handle the responsibilities of being publicly traded and is looking to benefit from the prestige, added volume and exposure from an IPO, it starts to show interest in the process of going public.
Steps to Launch an IPO:
Hire an underwriter – Register for IPO – Undergo verification by a market regulator – Submit an application to a crypto exchange – Generate buzz via road-shows – Determine IPO pricing – Indentify allotment of coins.
However, the Initial Coin Offering (ICOs) is used to sell crypto equity to the general public. Block-chain firms seeking funding can sell crypto-currencies to the public as traditional stocks do through IPOs. The issuance of digital tokens that backs an organization’s equity shares is referred to as crypto equity.
Companies can show interest by soliciting private bids from underwriters or make public statements regarding their interest in an IPO. The company going public may choose one underwriter or a syndicate of underwriters to manage different stages of the IPO process.
A team of underwriters, lawyers, certified accountants and regulatory experts is often assembled to be registered under the IPO (with market regulators in the country where coins will be made available). The market regulator has to approve the IPO application. Besides, the crypto exchange in which coins will be traded also needs to approve an application. The crypto company that is to be publicly traded has to adhere to listing requirement from both regulators and exchanges.
There are two sections of registration statement:
- The Prospectus: Every investor who purchases the issued security receives this.
- Private Filings: Information supplied for review but not necessarily made available to public.
Registration statement ensures that investors have access to sufficient and trustworthy information about securities. After all necessary approvals, the IPO is promoted in a road-show that aims to generate interest and allow underwriters to estimate demand for the coins being issued.
Throughout the marketing process, underwriters may make revisions to their analysis of the firm, which may lead to changes in the IPO price or date. A board of directors is also formed to represent the crypto holdings and the company’s administration.
Not everyone is able to invest in IPOs, as demand often exceeds the coins up for sales to public. Often, brokerage firms only let clients with specific amounts of assets or those who meet certain trading thresholds participate in IPOs. Existing token holders may be subject to lock-up agreements that prevent them from selling their coins right away. When they end, existing token holders may sell all of their coins on the market, leading to price drops.
An IPO’s coins may also be priced using a Dutch auction, which sees potential investors enter their bids for a specific number of coins they want to buy along with the price they are willing to pay. The coins are then sold according to the lowest bid for the entire allotment.
Reverse IPOs:
A reverse IPO is another method private crypto-currency companies can use to start being publicly traded. In it, a private company takes control and merges with a dormant public company. Often, these dormant public companies are businesses set up with the specific purpose of going through an IPO so they can later be used to help private companies go public. A reverse IPO is a process that takes between a few weeks to a few months, while a conventional IPO process can take up to a year.
A reverse IPO is used to become publicly traded without any investment banks or underwriters being hired and any capital being raised and occurs when a private company acquires a publicly traded company. Companies that go public through reverse IPOs still benefit from the advantages of being publicly traded including added liquidity. Liquidity refers to the ease with which an asset can be bought or sold.
IPO Alternatives:
Not all companies have to be publicly traded. Some of the largest businesses in the world are privately-owned and seemingly have no plans of going public. Similarly, not all companies have to go public through an IPO, as other alternatives are out there.
Direct Public Offering (DPO) is also known as a direct listing, in which companies offer securities directly to the public to raise capital without using underwriters. Here, investment banks are hired as financial advisors who help with regulatory and exchange approvals and find an initial share price.
Special Purpose Acquisition Companies (SPAC) have no commercial operations to acquire a privately-owned company, effectively making the private company a publicly traded company. SPACs raise money through conventional IPOs and place the funds in interest-bearing investments until they are used in an acquisition.
