Ever since Telegram raised $1.7 billion from private investors, people close to the deal have expected the company to no longer need to reach regular, mom-and-pop investors in order to fund a massive cryptocurrency project.
Telegram is scuttling its public ICO. Here’s why.
Only the wealthy will be able to participate in an ICO meant to democratize who can make money off tech.
The messaging company Telegram has now officially decided to scrap the public part of the Telegram ICO, according to the Wall Street Journal. It’s not surprising, but it is quite the about-face for a company that was planning to raise hundreds of millions of dollars through a public initial coin offering that was meant to democratize the way blockchain projects are funded.
One reason why this makes sense:
- Telegram doesn’t need the money, and likely doesn’t want the scrutiny. Telegram’s CEO, Pavel Durov, only initially secured $850 million from a global base of investors early in 2018 — from some established venture capital firms like Benchmark and Sequoia Capital. But then Telegram collected a second tranche of $850 million in what has to be one of the quickest fundraising events in tech. The company doesn’t need much more than $1.7 billion to actually build and market the Telegram Open Network: The whole company only plans to spend $400 million over the next three years, according to the white paper.
- So why risk more regulatory scrutiny by opening the ICO to the public? It remains unclear how the Securities and Exchange Commisssion will regulate these initial coin offerings, and that uncertainty to this day still freezes some venture capitalists from participating in ICOs. Some Telegram investors have acknowledged in recent months that a public sale could encourage more oversight given that now it wouldn’t just be wealthy venture capitalists who possibly could be hurt by a token sale gone wrong.
But here’s one big reason why this doesn’t make sense:
- Telegram, like other social messaging companies, claims to be on a mission to connect the world. And initial coin offerings as a concept claim to offer more and more everyday people the chance to financially support and profit off a good idea. That’s not happening here: Only people who qualify as “accredited investors” — the wealthy, the well-connected institutions — are eligible to buy into the Telegram ICO at a discount.
This could be a foreboding sign for ICOs — and could limit the amount that they upend the venture capital system. If public sales become too risky, then it will still be the elite who are able to cash in on the success of startups, blockchain-related or otherwise.
This article originally appeared on Recode.net.
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