We bounced off some thoughts to Crypto News Asia on whether this fad is here to stay.
by Risen Jayaseelan of Crypto News Asia
Here’s another buzzword in the crypto space to get familiar with — reverse ICOs. The reverse ICO moniker is mainly used to describe token sales by Internet platforms with a live product and an existing community.
The largest and most well-known reverse ICO was the token sale undertaken by Telegram.
Telegram has a working messaging and voice over IP (VoIP) platform with over 200 million users. Compare that with a nice-sounding project backed by experienced entrepreneurs but without a product or community.
It’s no surprise then that investors are now getting more excited about reverse ICOs.
California-based investor and advisor to tech CEOs and crypto projects, Cory Klippsten explains: “We talk about “corporate ICOs” more than “reverse ICOs.” Most deals I look at are spun from existing businesses and the number (of such deals) is growing.”
Klippsten: “Most deals I look at are spun from existing businesses and the number (of such deals) is growing”
Klippsten adds that when assessing reverse ICOs, he uses the same benchmarks of “team, product and market.”
“It is the same as VC investing. Of course, what you’re looking for in each is very different, but the buckets still work,” he says, adding that valuations of such projects are naturally higher than those just starting out.
Other messaging companies considering or have completed reverse ICOs include Internet giant Kakao in Korea, fintech firms Naga in Germany and Wyrify in Sweden. Norwegian telco giant Telenor has partnered with a start up called Hubii which has launched an ICO to operate in the media space.
Hence the concept of reverse ICOs is slowly inching into the traditional corporate world.
Indeed, some define reverse ICOs as a means for traditional businesses to decentralise themselves. Investopedia describes reverse ICOs as “a method used by existing, established real-world businesses to raise funds and get into cryptocurrency.”
Some also reckon that reverse ICOs from existing companies will unleash a greater amount of ICOs than what we have seen so far.
Recall Eastman Kodak’s ICO announcement, that sent its stock price skyrocketing. Then there were reports in March that AirAsia, Southeast Asia’s leading low-cost carrier would launch its ICO, to create a token for its community that numbers in the tens of millions.
In Thailand, J-Ventures, the venture capital arm of listed mobile retailer Jaymart Plc had done an ICO with a target raise of US$20mil.
This trend would attract the attention of regulators even more, as they seek to ensure that these ICOs do not transgress existing securities laws.
ICO advisor, Edmund Yong, explains: “ICOs are increasingly being co-opted by “Main Street” businesses as a fundraising tool, with or without the blockchain – or with very perfunctory use cases. While it is a now trend to slap a blockchain label to any venture to raise its profile and even its price (Long Island Iced Tea is case in point), the regulators are watching this like a hawk to make sure it is not misrepresentative.”
Adds a capital markets lawyer, “The regulatory risks for companies to do this (reverse ICOs) are still high. They might not be willing to stake their existing regulations and licenses on an ICO.”
He may be right.
In the case of Eastman Kodak, the US Securities and Exchange Commission had looked into the matter which led to the delay in its ICO. It is still unclear what stage Kodak’s ICO actually is in today. Nothing has been heard about the AirAsia’s ICO since the initial reports.
In Jaymart’s case, its Jfincoin has plummeted in value and the company also got bad press about one of its backers being allegedly involved in a fraud. It now is seeking the approval of Bank of Thailand and the country’s SEC to use Jfincoin for payments in stores, starting with its own Jmart stores.
And in the case of beverage company, Long Island Iced Tea, that morphed into Long Blockchain (LBCC), it has since been delisted by Nasdaq and now trades on the bulletin board stock.
Still, notwithstanding regulatory hurdles (which can be partly overcome by limiting token sales to private parties, for example), reverse ICOs do seem like a step in the right direction.
“Reverse ICOs add credibility to your project and increase your chances of getting funding in the current tough climate,” says Aaron Hong, who heads the NEO community in Malaysia.
What will also be interesting to watch will be reverse ICOs that get the approval of regulators. These would be regulators in markets that are making inroads into licensing token offerings. Case in point would be Elmer Francisco Industries, (part of 1111 Empire Inc registered in the Philippines) in the transport sector, which is seeking the approval of the Philippines SEC to launch its EFI coins. It will be a private sale to raise funds to build a new fleet of electric-powered jeepneys.
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