Messaging app Telegram’s $1.6 billion initial coin offering (ICO) was a widely-anticipated event. As it turns out, the company is not pursuing an ICO for public investors.
According to a WSJ report, Telegram will not offer its tokens to the wider public after raising almost $1.7 billion from private investors. The company was raising money to develop a Telegram Open Network (TON) – a blockchain-based payment system, that was described as a VISA/Mastercard alternative, for transactions amongst its users. If it would have occurred, Telegram’s public ICO would have been the largest such offering after Filecoin, which raised $257 million last September.
When it was announced, Telegram’s ICO garnered much attention from the press due to its size and the fact that Telegram is already a well-established messenger service with a substantial user base. On Feb. 16th, the Russian company announced that a private sale of its tokens had helped raise $850 million. Another $600 million was to be raised from the public offering.
But a combination of regulatory uncertainty and enthusiastic funding from eager private investors may have tipped the scales against a public ICO. A March Coindesk article did an excellent job of detailing problems with Telegram’s ICO. They range from absence of a viable product to existing scaling problems on blockchain technology. Because it did not have a product in place before the public offering, Telegram’s ICO could have also run into rough regulatory weather. The sale of Telegram’s tokens to private investors is governed by Simple Agreement for Future Tokens (SAFT). Commentators said SAFT’s days may be numbered after the SEC reportedly cracked down on the practice late last year. Regulators have also sounded warnings about the status of ICO tokens recently and there is a possibility that the practice may come in for additional scrutiny.
The cancellation of Telegram’s ICO is not expected to have a wider impact on the ICO market. The company’s actions are part of a growing trend in ICO markets. According to statistics from research firm TokenData earlier this year, a majority of ICOs now occur in private markets rather than public ones. Pre-sale offerings accounted for $1.6 billion out of the $1.97 billion raised by the last week of February. The lure of ICOs for private investors is the opportunity to get in on the action early and, subsequently, sell the tokens at a profit during the public offering.
But Telegram’s ICO offered another opportunity to investors. The app is already established and has significant user traction. Private investors are attracted more to the promise of crypto at scale than the possibility of instant profits. “TON is not a technology bet, since the ICO isn’t proposing anything new,” a post on technology publication site Recode states. The article further goes on to state that Telegram’s ICO was an “easy, introductory way” for established investors to gain exposure to the crypto-economy without taking a risk on whether the currency will gain sufficient distribution.
One final thing: there is a point to be made here about how ICOs, which claimed to democratize venture capital, have become a playground for accredited investors.