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ICOs and the Future of Capital Raising

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Less than a decade after Bitcoin launched in 2009, the number of digital coins has skyrocketed — and initial coin offerings (ICOs) have the corporate world considering their merits as a new fundraising tool. But the specter of impending regulations on the horizon and continued volatility in the cryptocurrency market have some wondering how far ICOs will progress into mainstream finance. 

Toppan Vintage, a trusted financial printing and communications company, in partnership with Mergermarket, is pleased to present the newest edition of M&A Pulse newsletter. In order to grasp the underlying advantages, disadvantages, and expectations related to ICOs, Toppan Vintage commissioned Mergermarket to interview leading experts in the field.

Toppan Vintage question: Do you think initial coin offerings (ICOs) could serve a meaningful purpose when it comes to corporate capital raising? Leading industry experts weigh in...

Peter Henning, Professor of Law, Wayne State University says: Digital coins are far easier to create and trade than the typical securities we see, and if they become another form of debt or equity, then certainly they can have a meaningful role. They would then become one other strand by which companies can raise money.

However, you would then likely lose the advantage of being either largely or completely unregulated. It's hard to say where we're going to be in five years. Five years ago, barely anyone had heard of Bitcoin, and initial coin offerings were in their infancy. Now that we're looking at values in the billions of dollars, regulation is coming, and I think that's going to have the greatest effect. If companies could raise money with no regulatory costs, then everyone would flock to it. That is not going to happen.

Grant Fondo, Partner and California Litigation Leader, Goodwin Procter adds: There are a number of companies that have obviously used ICOs as a means of fundraising, both internationally as well as domestically. I think it's currently a strong trend in the U.S., but I think it has been tempered somewhat given the SEC's pronouncements in the Munchee decision, and then some of SEC Commissioner Jay Clayton's statements. Certainly, the form of some of these offerings is changing as a result of that additional guidance, which I think was helpful. I do think that token raises, rather than just initial coin offerings, will continue to be something that entrepreneurs evaluate and use as a fundraising tool.

Arianna Simpson, Founder and Managing Director, Autonomous Partners weighs in: I think the ICO model is definitely an important one, because it has the potential to open early-stage investment up to a broader class of investors. That being said, I think it's extremely important that thoughtful regulation be put in place to monitor who is investing and how these sales are being done. While I think the model is important, I think it's also important that we put some parameters in place to avoid fraudulent activity and other issues.

Elliot Han, Managing Director, Argon Group says: Yes, I do think they will become a more mainstream method of capital raising. I don't think they will replace the traditional forms we have seen work for many companies in the past, but ICOs will become a supplement and, depending on the nature and stage of the company, will serve as a complement as well. Where they fit in the timeline of a company's fundraising, only time will tell, but it's clear they can serve as a seed round where there might be a strong idea, and a little further down the corporate life cycle where there is a minimum viable product and they are looking to take it to the next level.


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ICOs and the Future of Capital Raising

 
 

Will digital coins become part of the financing ecosystem of the future? We spoke with four industry experts to gain insight on the subject.

Toppan Vintage

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