The messaging platform giant, Telegram has been in the news recently because of its Initial Coin Offering. Telegram’s high profile Initial Coin Offering is highly anticipated by the cryptocurrency community and can be the biggest ICO for 2018. Many analysts predicted that Telegram’s cryptocurrency TON (or Grams) can achieve a 200$ billion market cap in just five years, which will put it in the top 5 cryptocurrencies by market capitalization next to Ethereum and Ripple.
Other expert analysts were predicting that the company’s Initial Coin Offering will probably be overvalued. Reports about Telegram’s campaign and goal were varying. People have speculated that the hard cap for Telegram’s Initial Coin Offering is higher than 2.5$ billion. If you want to know if Telegram’s Initial Coin Offering is overvalued and the reasons it could be, read our Telegram article.
Telegram’s cryptocurrency looks promising to the average cryptocurrency investor and it is not surprising that it won our number one spot for Top 5 Initial Coin Offerings that might make you a millionaire. However, it looks like Telegram might just cancel its highly anticipated public Initial Coin Offering and the average cryptocurrency investor will have to wait to get a hold on those Grams.
Telegram might cancel their Initial Coin Offering
Early reports showed that the messaging app was striving to raise at least half of their target of 1.2$ billion from the public Initial Coin Offering. However, a recent financial statement submitted with the U.S. Securities and Exchange Commission (SEC) shows that Telegram already raised at least 1.7$ billion from two private sales.
After the news came out, it was reported that sources close or familiar with the project are thinking that Telegram might cancel its public sale. The reasons are simple enough – raising money from the public Initial Coin Offering can bring the company more problems than value. A big reason for this is that Telegram’s Blockchain, the Telegram Open Network (TON) is currently being created. This means that Telegram’s cryptocurrency does not exist yet and no one has any Grams yet.
This means that Telegram is currently selling basically an IOU (I Owe You) for future Gram Tokens under the Simple Agreement for Future Tokens (SAFT) framework. An IOU is an informal document that acknowledges debt. IOUs specify the debtor, the amount owed and sometimes the debtor. According to the U.S. Securities and Exchange Commission filing, Telegram is selling a security that cannot be sold to non-accredited investors, except in few cases.
A partner at Morgan Creek Capital Blockchain, Anthony Pompliano said about the subject:
“The regulatory environment is in a weird place with most teams having more questions than answers. If teams can raise their capital goals in private sales, they will continue to do so until there is less ambiguity in regulations.”
From Telegram’s whitepaper we know that they aim for a network of fast payments, domain registration, file-sharing and more utilizing decentralized privacy. The whitepaper shows an ongoing cryptocurrency sale that will continue in the future, but won’t begin until the protocol launch.
Legal complications and a secondary market for Grams
It is hard to say if this is what will happen, as Telegram have not made a statement yet on the subject, but it sure looks like it. Especially if you look at the legal work that has to be done for a legal public sale. For the public sale, Telegram will have to comply with know-your-customer (KYC) and anti-money laundering (AML) verification process, so they can legally sell to the average cryptocurrency investors.
Know-your-customer and anti-money laundering verification is less troublesome for investors that have already been identified as investors and have invested more than once before. However, it is more challenging for people that wish to invest for the first time, as they have to prove who they are. Proving this is a slow and somewhat painful process.
Anthony Pompliano also said:
“The goal of fundraising is to gain access to capital to allow a team to build a product and a company. It appears that Telegram has already achieved their goals so there would be no reason to conduct a public sale.”
Additionally, there is already a secondary market for Grams, where smaller investors can buy the cryptocurrency from bigger investors that managed to participate in the private Pre-Sales. Having these factors in mind mean that it is unclear if Telegram’s official Initial Coin Offering will happen at all.
For Telegram, building the product first and then selling it to public investors, is the better thing to do, according to Siddharth Kalla, co-founder of the Turing Advisory Group. He added:
“The private sales were raised at around the top of the market euphoria. For a public valuation to reach back to those levels, the crypto community would need to see something concrete.”
The risks of going public vs capital
When you think about it, canceling the Initial Coin Offering may be for the better. Companies go public to secure additional funding, but with it they bring additional complexity into its relations with customers and investors. Dealing with thousands of investors’ opinions is not something that Telegram will want to engage in.
That’s why most publicly traded companies have large departments dedicated to public and investor relationships. Telegram is around five years old, but it is still a fairly small company dedicated to the development of their messaging app. It is mainly funded by the founder’s own capital, which could mean that they don’t have experience with investors. This opinion from Stephen Palley from the law firm Anderson Kill summarizes it well:
“In this twilight world of Initial Coin Offering crowdfunding, you have a company that is brand new, essentialy a startup… You suddenly have tens of thousands people who feel like they are stakeholders. Do you really want to manage that?”
Of course, there were other opinions as well. Joe DiPasquale, CEO of the crypto fund-of-funds BitBull Capital, said:
“I see no motivation for Telegram to call of their public sale. They seem dead set on raising as much capital as possible… Considering they’re targeting the mass adoption of their user base, I can’t imagine them estranging the masses by canceling the public sale.”
The best way for the public token sale to happen will be, because of investors’ demand and pressure. The demand is there and it is high so it remains to be seen, if there will be an official public Initial Coin Offering.
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