How to hold a "mini-IPO" and raise $ 50 million
After a prolonged collapse of the crypto market in 2018, many experts started saying that the ICO market had died. However, that’s not the case, and startups continue to raise millions through the initial offers of their coins.
In 2018, the cryptocurrency market experienced a prolonged prices crash. Bitcoin fell below the level of $4000 from its peak values. Most of the
altcoins followed it, losing from 80% to 99% of their value.
The collapse would have to cool investors, but statistics denies that. According to ICOData,
crypto startups raised $7.8 billion last year. And that is $ 1.6 billion more than in 2017.
The ICOBench data - another popular tracker - also shows growth. The service claims that in 2018, crypto projects collected $11.5 billion from
ICO, which is $1.5 billion more than the year before.
Moreover, not only the amount of money raised, but also the quality of projects is growing. For example, in the past year, such giants as EOS, TON, TRON and others conducted their ICOs.
This year, the trend continued and there were even a few signals that the ICO market is entering a more mature phase of development. In particular, the US Securities and Stock Market Commission (SEC) approved two ICOs of Reg A + type.
What is ICO Reg A +
Reg A + crowdfunding is one of the most desirable ways to get investment in the US market. After all, it allows you to raise an impressive amount from ordinary investors and facilitate the subsequent placement of
“Reg A + is often called a mini-IPO. This is due to the fact that via Reg A + the project may raise up to $50 million over a 12-month period from non-accredited investors, while publicly advertising this investment proposal on the Internet. Also, the company may conduct several subsequent Reg A + proposals, ” explains Nikita Novikov a lawyer from
blockchain practice Juscutum.
Moreover, according to the specialist, there is no lock up period in such crowdfunding. During the term of that restrictive measure, investors cannot sell their tokens. As the reult investors have much more ways to make money with the project of Reg A + type.
“This advantage allows early investors to take advantage of instant liquidity and sell part of their tokens,” says Nikita Novikov.
In addition, reporting and compliance requirements for ICO Reg A + are much softer than other regulations.
Nevertheless, such crowdfunding is still obliged to comply with the basic rules for conducting an ICO in the United States. First of all, a startup must be registered in the country in accordance with all laws. Also the registration itself covers the release of tokens. It must be agreed with the authorities of any of the states. And a lot of paperwork is not avoidable.
“The main document for potential investors and the SEC will be Form 1-A (“Circular Offer”) - a document in which the issuing company submits information about its activities, the essence of the transaction and possible risks,” says Nikita Novikov.
In any case, a startup will have to provide the regulator with balance sheets and financial statements for two years. All this will be checked according to standard audit rules. You will need to repeat this procedure regularly.
“Also, the company has obligations to submit annual and semi-annual reports, as well as reports on current events at EDGAR - a system for storing SEC information about issuers of securities,” the expert states.
Pioneers of Reg A +
Last week, The Wall Street Journal, citing its own sources, said that the SEC had approved the initial placement of Blockstack’s company tokens. It would seem surprising, but that ICO - is the first of its kind, because it falls under the class Reg A +.
In order to achieve that, the project had to not only make a lot of effort, but also lay out a quite a fortune. One of the Blockstack’s founders, Muneb Ali, claims that the company had to spend over $2 million to get the green light from the regulator. According to him, the process was incredibly long and expensive, because the SEC had to create an approval procedure for such crowdfunding from scratch.
In general, Blockstack is far from being new to the investment collection market. Back in 2017, the company collected $5 million from venture capitalists and $47 million during the ICO.
The project itself is building a decentralised computer network and a platform for creating applications. Moreover, the company focuses on privacy, and promises that users have full control over their data on the Blockstack network.
Following the Blockstack, the SEC issued the Reg A + label for yet another crowdfunding project, YouNow, which is developing the Props platform. It has his its own token under the same name, and among other things, the project encourages users for their activity on the platform. So with the help of YouNow tokens, users can buy exclusive items and get discounts.
In fact, YouNow conducted its ICO two years ago. And all this time, the project has been negotiating with the SEC about the nature of its crowdfunding. Now the regulator recognised its placement as one of the most upscale and best ones.
Like Blockstack, YouNow is far from being a newbie in collecting investments. The service, under the development of the Props platform, raised $21 million during the presale. It involved such market sharks as Union Square Ventures, Venrock, Andressen Horovitz and others.
And after receiving Reg A +, YouNow is not planning to continue selling its own tokens, like Blockstack. On the contrary, users of the Props platform earn tokens via various applications. The received cryptocurrencies can also be used on the YouNow platform itself. The downside is that for now, it’s not possible to withdraw coins in fiat currencies.
“We used Reg A + so that non-accredited investors, users, applications, and validators can get Props and its functionality in accordance with US laws,” says Props CEO Adi Sideman.
More of Reg A + ICO
Blockstack and YouNow have invested a lot of effort and money to get Reg A + qualification from the SEC. And according to the Blockstack founder, companies and the regulator even had to write the whole procedure from scratch.
It means that two projects paved the way for the rest of the crowdfunding crypto projects. And now it will be much easier for startups to go that way. The only question is whether they will be able to take advantage of that.
Author: Alexey Ryabukha