We also published this via CRV’s Medium page — check it out here!
As venture investors who have followed the crypto space, we’ve been keeping an eye on the Telegram token sale. To recap — Telegram is an encrypted messaging service available both on the Web and via app. It’s completely free and has no ads. Users can send any kind of media or documents, and can program messages to self-destruct after a certain period of time. The team claims that Telegram is “faster and more secure” than any other messaging service, though some security researchers have taken issue with this.
A Telegram message thread can host up to 100,000 users, which means that many communities use it as an internal social network — crypto investors, for example, use it to host group chats about various currencies. Telegram intentionally doesn’t collect data about where its users live and what they use the platform for, but it has hit #1 in social networking apps in 100 countries. According to AppAnnie rankings, Telegram is particularly popular in countries like Uzbekistan, Ukraine, and Russia, where Internet access may be limited or closely monitored by the government.
The company decided to launch a blockchain platform and cryptocurrency (called TON) earlier this year, and has since raised $850M in an initial token sale. Telegram is reportedly raising another $850M now, with a plan to raise a third round later this year. A number of top tier VCs have invested (KPCB and Benchmark are reportedly among them), though some of the most established venture investors in the crypto space don’t intend to participate.
According to leaked documents, the Telegram team will create 5 billion tokens (called “grams”) — 44% will be sold, 4% will be allocated to developers, and 52% will be held as reserve currency. What will these tokens be used for? Users can exchange tokens with each other or use them to pay for services offered by Telegram or other providers (e.g. file storage, viewing content, etc). If all works as planned, grams will let people quickly and securely pay for goods and services worldwide, with no currency conversions required.
Investors and experts in the crypto space have published a variety of opinions on the Telegram token sale — some claim it’s a scam, while others argue that it’s an amazing opportunity to invest early in a foundational platform of communication and commerce. We summarized these viewpoints into a list of five pros and five cons of investing in the Telegram token sale below, from the perspective of a venture investor evaluating the opportunity. We also took a look at Telegram’s ICO in comparison to two other established messaging platforms that have ICOed, Kik and YouNow.
*It almost goes without saying, but another huge concern is regulation — in recent weeks, the U.S. government has been hotly debating further regulation of ICOs and blockchain-related startups, and Facebook and Google have moved to boot ICO content off of their platforms. Team is therefore especially important as Telegram will need the expertise to navigate a minefield of uncertainty.
On the point of ownership, it’s worth noting that owning tokens (versus owning an equity stake) could be positive or negative. It’s possible to imagine a scenario where the platform’s public or private market valuation doesn’t fully capture the value to users. Twitter is often cited as an example of this — though it is incredibly valuable as a network, the company has struggled to monetize successfully and the stock has suffered as a result. In this case, a token that reflects how much users value the platform might be worth more than the comparable equity ownership.
However, it’s equally possible to consider a scenario in which an equity stake would be significantly more valuable than tokens. For example, if the velocity of usage of TON slows significantly, the token could drop dramatically in value. However, outside investors might place more value an equity stake in the company if the underlying technology is still strong or the business has other valuable assets. Even if the value of the token drops to zero, equity owners could sell the business and recoup some of their investment.
In the last year, we’ve seen other social and messaging platforms announce the launch of their own crypto coins. Here are two ICOs we’ve seen from more established companies, and how they compare to Telegram:
Instant messaging platform Kik, which was founded in 2009 and has raised upwards of $200M in venture funding, held an ICO in fall 2017 to raise $98M for a new currency called Kin. This included a $50M institutional pre-sale round, and ~$48M from almost 10k other investors. Similar to TON, Kin can be used for in-app transactions. At the time of the ICO, Kik had approximately 15M monthly users according to TechCrunch — falling significantly short of Telegram’s 100M+ MAUs.
Kin now has a market cap of $167M, with an ICO token price of $0.0001, and a current price (as of 3/9) of $0.00022. Kin has seen appreciation of ~120% since the token sale ended on 9/25/2017. It’s difficult to compare this to overall crypto market performance as many new coins have been spawned since then — but the current top ten coins (eight of which were also in the top ten as of 9/25) saw an average return of 595% (median of 320%) since 9/25.
In terms of the actual crypto implementation post-ICO — Kin is still not available for use inside of Kik, though the company’s website says it is doing a “very early, limited integration” of Kin with a small group of users. The initial whitepaper said Kik would integrate Kin “over time” but gave no specific timeline. Additionally, the company’s founder recently announced that they planned to shift the Kin network from Ethereum to Stellar for scalability.
Livestreaming app YouNow launched their own crypto platform last fall, with an app called Rize where users can pay each other for creating content in coins called PROPS. YouNow was founded in 2011, and had raised $26M in venture funding before raising $25M in an ICO for the new PROPS platform. At the time of the ICO, Rize (the first PROPS-powered app) was pre-launch, but YouNow had 40M registered users, an average of 60k in-app purchases daily, and $5M+ in quarterly virtual goods sales.
Though distribution of the PROPS coins were slated to take place in Q1 2018, the company recently announced that they were delaying distribution due to regulatory comments to “allow sufficient time for further growth of utility and value” within the ecosystem — so the coin has not yet started trading on any exchanges. However, the Rize app (ex-PROPS token) launched in public beta in February 2018, and the company has three other apps that operate on the PROPS platform already in development. In contrast to YouNow, where one user live broadcasts to an audience, on the current version of Rize all users are live on camera and can join group chats led by a host.
Comparison to Telegram
Kik, YouNow, and Telegram are similar in many ways — all three have the following characteristics:
In our opinion, Telegram has a few advantages over Kik and YouNow as an ICO candidate:
Our conclusion? We aren’t convinced that Telegram will deliver significant upside beyond the ICO valuation.
If the team is successful, the Telegram platform could power a multi-billion dollar business that facilitates millions of micro-transactions daily. This would be attractive for an early stage venture bet, where we could see the path to a potential 100x return. However, given that Telegram is raising $2B, we have too many outstanding questions around the development of the platform to believe that these tokens will yield a similar return. Telegram has yet to recruit the team and build the platform necessary to launch the TON coin, and as we observed with Kik and YouNow, this can be a many month (or even many year) process. In addition, the team has not clearly outlined these recruiting and product development milestones.
Thanks to Saar Gur for his help with and feedback on this article!
Have you considered investing in the Telegram token sale? Let us know what you think! We can be reached via email at firstname.lastname@example.org and email@example.com, or on Twitter @venturetwins.
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