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Making Sense Of Coin Offerings

Jul. 14, 2017 4:13 PM ET2 Comments
Daniel Carlson profile picture
Daniel Carlson


  • Bitcoin and Etherium have sparked a digital currency landgrab.
  • IPOs died.Unicorns are hurting. Are ICOs the answer for raising money in startups?
  • This will likely end badly for most buyers.

The path to liquidity for tech companies used to follow a very simple model. Raise money privately, build up sales and earnings, then go public with a splashy IPO. This worked well until the big Y2K tech bubble, during which many companies went public at huge valuations but with no earnings and not much revenue. By going public, these companies offered liquidity for investors, and profits for venture capitalists, but that liquidity gave investors the opportunity to bail when the bubble burst. This ended in a lot of sad entrepreneurs left holding founders shares of a now public, micro-cap company with limited prospects.

The result of this was a change in the way companies raised money from investors. Instead of going public, where management is (heaven forbid!) held accountable and expected to produce revenues and earnings, many companies have opted to stay private. By doing so, venture capitalists, aka the self-proclaimed smartest people on earth, could invest large sums of money at ever increasing valuations. A great new model for the VCs, managements could focus on building for the future, no matter how far off it is, while investors got rich…on paper at least.

The problem with the ever-increasing private company model is that darn liquidity issue. When valuations keep going up, eventually someone will want to take their money off the table. Especially when the bloom is off the rose and things start to look a little dicey. For example, do you think any Theranos investors would have like to have sold their shares at a $4.5B when they realized the product didn’t actually work? Or, how about trimming some Uber at $70B when the CEO and board turn their treatment of women into a public fiasco for the company?

It is becoming increasingly clear that staying private and

This article was written by

Daniel Carlson profile picture
At TW Research Group, we look for select micro-cap opportunities where we believe the market is misjudging of a company's potential. We employ Evidenced Based Investing to screen ideas. TW is NOT a broker dealer and we always recommend you perform your own due diligence before investing. TW works with and is compensated by many micro-cap companies.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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