Initial Coin Offerings can be considered an ingenious way to raise funds for startups. Unfortunately, given the number of ICO scams today, it is important to note that there is an increased scrutiny on ICOs. Encrypted messaging app Telegram decided to stop holding their public initial coin offering. The Telegram team planned to develop a “third-generation blockchain”.
And the reason why they stopped makes a lot of sense. One, Telegram, being able to raise around $1.7 billion from private investors, mean that it doesn’t need more funds. In addition to this, it is possible that there will be increased scrutiny once Telegram continues its ICO public sale.
In 2018, Pavel Durov, the CEO of Telegram was able to initially secure around $850 million. Benchmark and Sequoia Capital are some of the players that were able to invest in Telegram. As for the second half, it was considered as one of the quickest fundraising events in recent tech history, According to its white paper, Telegram only plans to spend around $400 million in the next three years.
Scrutiny By The SEC
Regulatory changes are expected within the niche. In fact, there are many ICOs that are running investors’ money. And for this reason, SEC is taking a closer look at these ICOs. Now, why risk more scrutiny?
If you will ask Spencer Bogart, who works as a partner at Blockchain Capital, “from a regulatory perspective, I think a public sale is considerably riskier for Telegram than a private sale”. He added that “Considering the amounts raised by Telegram via private sale, there’s really no need to incur the additional risk of a public sale”.
If you will ask the SEC, they consider tokens that are sold in ICOs as securities in disguise. And recently, there have been crackdowns on certain projects. But of course, there are some tokens that are not used as currencies but rather a utility that can be used within their networks.
Only The Rich Can Participate?
Some of Telegram’s investors acknowledged a few months ago that a public sale wouldn’t be a good move for the company. For one, there are those who argue that it isn’t just venture capitalists that are going to be affected by a token sale gone wrong. There are also those average investors who could get affected.
However, you have to take note that not everyone can participate in the ICO. Though ICOs purpose is to bring investors all over the world to take part in a project, only those who are going to qualify as “accredited investors” can buy into the Telegram ICO at a discount.
ICOs were able to raise more than $7 billion for this year alone. Though it is considered a great way to democratize venture investments, there are many issues surrounding ICOs that should be addressed. Eric Voorhees, who is the founder and chief executive of cryptocurrency exchange ShapeShift, he mentioned in a Tweet that “The SEC has created an environment where only the rich are able to get access to financial deals. The pleabians must stick to the lottery”.
Could this be a smart move for Telegram to stop its ICO public sale?