Why Crypto Companies Are Eyeing an IPO—From an Ex-Goldman Sachs Investor by@Multiplied

Why Crypto Companies Are Eyeing an IPO—From an Ex-Goldman Sachs Investor

The crypto industry is getting in on the IPO action, leading with Coinbase while others like Circle and Bitdeer are turning to SPACs, or Special Purpose Acquisition Companies, as another way to go public.
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IPOs are on a tear this year with over two thousand offerings, raising a total of $453 billion. The surge in interest has been partially driven by a number of hot tech IPOs, such as Robinhood, Udemy, Squarespace, and more.

The Crypto industry is getting in on the action. Coinbase, one of the most well-known and valuable crypto companies, debuted on Nasdaq earlier this year, representing a huge milestone for the industry. Similarly, crypto companies like Circle and Bitdeer are turning to SPACs, or Special Purpose Acquisition Companies, as another way to go public.

According to a recent report from BeInCrypto, a number of crypto companies are eyeing an IPO in the near future. The list of firms includes Kraken, a leading crypto exchange, and BlockFi, a crypto wealth management firm.

In this article, we spoke with Gavin Qu, VP of Operations at PrimeBlock, about the reasons why crypto companies are eyeing an IPO.

How does a Financial Analyst like you end up in the Bitcoin mining industry?

It's a bit of a story. My areas of study and internship experiences, including Investment Banking and Equity Research, have been focused on economics and finance during college. After I graduated from the University of California, Berkeley, with degrees in Economics and Statistics, I joined Goldman Sachs Asia Securities Division. As Global Equities Salesperson, I got to explore, research, and invest in the US markets single stocks with a focus on SaaS, Internet and EV, semiconductors and emerging technologies. Driven by my strong interest in corporate finance, investment, portfolio management, etc., I have self-studied and passed all three CFA exams throughout college and my first years of work.

Looking across US Internet/SaaS companies that have grown from the late 20th century until now, I have been surprised by the strength of exponential adoption growth translating into successful business models and corporations. I strongly believe in the potential of blockchain as the “Internet of Next Era” and wish to be part of it.

There has been a huge trend of finance professionals moving to Crypto Mining as well as other parts of the Crypto Ecosystem. The industry is rapidly evolving and creates lots of opportunities for people with different fields of expertise. Specifically for crypto mining, there are quite a lot of transferable skillsets for finance professionals.

Why are crypto companies eyeing an IPO?

The short answer: because it’s an efficient way to raise stable capital and position yourself for continuous access to public capital markets.

IPOs are a great way for companies to raise money, and the crypto industry is no different. A number of firms are eyeing an IPO because they want to take advantage of the current market conditions and raise more capital in a public, transparent and durable way.

Traditionally, crypto companies have relied on token sales and venture capital to raise money. An IPO can be a more efficient way to raise significant capital, which is used to expand operations and attract more customers, all while building the company's equity value.

By going public, a crypto company can offer shares in the company to potential investors, giving them a stake in the company and a chance to create value if the company does well.

Besides money, why else are crypto companies going public?

Another reason is to attract talent. One of the key challenges for crypto companies is attracting talent. The best engineers and developers are often scooped up by large tech companies, such as Google, Facebook, and Amazon.

An IPO can help to change that. By going public, a crypto company can offer employees equity awards linked to liquid, publicly-traded shares, which can be a major draw for top talent. Public companies also tend to have better benefits and pay packages than private firms. This can make them more competitive in the race to attract the best talent.

Going public can also boost your credit rating. A crypto company's credit rating can be a major impediment to success. Many firms in the space have been shunned by traditional lenders, as they see the crypto industry as too risky.

By going public, a crypto company can show that it is a transparent and durable business with a sound financial footing and regular, transparent, and regulated public disclosure and internal controls. This can help to improve the company's credit rating and make it easier to get debt financing in the future.

Additionally, an IPO can help to increase the visibility of a crypto company, and access a much wider audience, including institutional investors and the general public.

Consider the publicity achieved by the likes of the Coinbase IPO. The company was able to raise over $500 million and its share price surged by as much as 60% on the first day of trading. This exposure can be a major boon for a crypto company, as it can help to attract new customers, business partners, and investors.

How do market conditions impact these decisions?

An IPO can help a crypto company weather a downturn in the market. When the prices of cryptocurrencies drop, it can be difficult for a crypto company to stay afloat without a range of financing options.

Essentially, an IPO can provide a cushion for a crypto company during a downturn. A public company can better maintain its operations during tough times and eventually rebound when the market recovers.

Why is a compliant path to capital raising important?

A token sale generally doesn't exchange equity in the company for money. Depending on how it is structured, it may or may not comply with securities laws and other regulatory requirements, particularly given the uncertain and evolving regulatory landscape around digital assets in the US and beyond.  A compliant public securities offering can help to legitimize a crypto company and show that it is complying with the rules and regulations.

Going public means conducting your capital raising – and then living as a public company, with regular and transparent reporting and other compliance obligations – under the rules and regulations of the Securities and Exchange Commission (SEC). 

Let's recap – what are the main reasons crypto companies are going public, and what does the future look like for crypto IPOs?

Overall, there are a number of reasons why a crypto company might choose to go public. An IPO can provide a company with much-needed capital, attract top talent, improve its credit rating, provide credibility as a regulated public entity and increase its transparency and visibility. It can also help a company weather a downturn in the market through access to broader financing options.

The crypto industry is growing rapidly. As the industry matures, we can expect to see more companies go public through a traditional regulated equity IPO (while, of course, driving technological and regulatory innovation in how capital formation, trading, and record-keeping will look like in the future with the secular shift towards digitally-native architecture). While it comes with added transactional and ongoing costs and frictions, it is a net positive for the crypto industry, as it can help to legitimize the space and attract more investors, business partners in traditional sectors, and talent. It will be fascinating to see how the industry matures in the years to come.

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About the author:

Gavin Qu is the VP of Operations at PrimeBlock, a digital asset mining and infrastructure provider. Gavin was previously in a Global Equity Sales role at Goldman Sachs’ Securities Division, leading the Asia Equities salesforce on US/EU IPOs across various sectors. Gavin brings years of experience in investment banking, global equities, and project management to PrimeBlock’s founding team. 

Photo by Patrick Weissenberger on Unsplash

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