TLDR. The first IPO by a Blockchain venture will signal that the next cryptocurrency bull market is in good shape. One question is which Blockchain venture will be the the first to IPO. Candidates include Binance, Coinbase, Silvergate & tZero. Looking at the macro conditions and the IPO process offers some clues about when this will happen. Another question is what the first IPO by a Blockchain venture will tell us about the wider transition to The Blockchain Economy. For investors, our aim with this post is to give some context before the frenzy of IPO pricing and roadshow. Bitmain had a failed IPO process. Investment Bankers will be trying hard to overcome the Bitmain bad news story and write the story of the first successful Blockchain IPO .
This post includes:
- Why this will signal a sustainable cryptocurrency bull market
- Who are the candidates for the first Blockchain IPO
- The Bitmain bad news story
- When Part 1: understanding the IPO Process
- When Part 2: Macro market analysis
- Legacy IPO vs Blockchain STO
- Being No 2 maybe better but the macro window is small
Why this will signal a sustainable cryptocurrency bull market
- The investment bankers advising the companies will time it for when they are confident that we are in a cryptocurrency bull market and they have all the data to guide this decision. So when we see a successful Blockchain IPO, we can be confident that we are in a cryptocurrency bull market.
- The marketing of the IPO will push that bull market to new heights by bringing new investors to the table who see the IPO in mainstream media.
The first IPO by a Blockchain venture will tell us a lot more about the price direction of cryptocurrencies than all the Technical Analysis (TA) put together. The investment bankers will look at TA among many other signals before making their big timing & pricing bet.
When Part 1: understanding the 7 step IPO Process
To get a handle on when will the first Blockchain IPO will happen, we need to understand the 7 step IPO Process:
- Prepare. Make sure the company is ready to IPO. This takes place behind closed doors with strict confidentiality enforced; with so many people involved it is a bit of an open secret. Typically this is 6 months pre IPO and the IPO may never happen so this open secret is not worth much.
- Tell. A PR charm offensive. This is the tease, when we get familiar with the name in public. The IPO word will be used but the official position will be Deny (see Stage 4). A PR charm offensive can also be used to raise a big private round, so there is not a confirmation of IPO process till we get to at least Stage 3.
- Hire Announcement. Typical CXO hire pre IPO is a CFO who has “been there and done that” ie gone through IPO and reporting as a public company.
- Deny IPO. It is customary at this stage for CEO and other spokespeople to deny that there is any IPO. This is because an IPO process can be stopped at any stage prior to 6, so this prevents brand damage from a “failed IPO”.
- File with regulator. The filing with regulator is called an S-1 if filing is with SEC in USA .This has information about the company but no price for the shares or date for the IPO.
- Price & Date.This starts the the roadshow ending in the IPO about 2 weeks later.
- Post LockUp Exit. This is when VCs and other Insiders can sell. It is is the real IPO as far as they are concerned. Step 6 is more of a marketing event than a financial event.
Any of these 4 things can change this planned process:
– Acquisition. Before or after all of these 7 stages, an acquirer can come in. For example, Facebook could acquire Coinbase before or after they IPO.
– Mega private round. This is like an Acquisition, because early investors and founders can at least partially exit.
– Market tanks. The investment bankers can “pull an IPO” if a crashing market means they cannot get the target price.
– Execution snafu. The company can do something that significantly reduces the value of the business or simply not meet targets or suffer some kind of attack. For example, a major loss from a scam will derail any of these Blockchain IPOs.
The Bitmain bad news story
Investment Bankers will be trying hard to overcome the Bitmain bad news story in 3 ways:
- Timing. Bitmain filed deep in the Crypto Bear market in September 2018 and “pulled it” after the 6 month expiry (during which they had to IPO or cancel) at end March 2019.
- Business model. As a Miner, Bitmain gets paid in cryptocurrencies. When the trailing financials are from a bear market, they look bad.
- Less controversial. Bitmain got too publicly embroiled in the Bitcoin Civil War, meaning that many influential crypto investors have a “over my dead body” attitude to buying Bitmain shares.
Investment Bankers don’t want investors looking at Bitmain as a comparable.
Who are the candidates for the first Blockchain IPO
All of these have the scale to do an IPO and have made some noises in that direction. To avoid any implied ranking, these are in alphabetical order:
Could be by a) Medici Ventures which owns tZero and some other Blockchain assets b) via Overstock (which owns tZero) selling their legacy e-commerce business leaving just Medici and tZero or c) via a spinoff of Medici or tZero from Overstock
When Part 2: Macro market analysis
A Blockchain IPO needs a bull market in both Legacy Finance and in Cryptocurrencies. During 2018 we had a bull market in Legacy Finance and a bear market in Cryptocurrencies. During 2019 we might have a bull market in both but the window may be tight and a lot of ventures crowding to get through that window (pity those poor Investment Bankers).
If we don’t get this window when both markets are healthy, the big Blockchain ventures lining up to IPO are likely to accept either an acquisition offer or a big private round (aka “private IPO”).
Legacy IPO vs Blockchain STO
When one big use case for Blockchain is Security Tokens that will disrupt Wall Street, it seems odd to use classic Wall Street firms to manage a classic Legacy Finance process.
tZERO will be the most conflicted about this as they are most vocal about disrupting Wall Street, but all the ventures have this issue. We may see one of two variants:
- A Security Token Offering (STO) using top tier IPO Investment Bankers and best practices from Legacy IPO.
- A Legacy IPO with a twist, using some disruptive innovation such as an online dutch auction IPO.
Being No 2 maybe better but risky
The race to be first is driven by a) a short window when both markets are in bull market b) the consumer marketing impact of an IPO. An IPO is less about raising capital than getting mindshare of millions of potential customers. In some markets it pays to be second to IPO not first. The short window may mean such caution is thrown to the wind.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).