To IPO or Not to IPO? SPAC is the question

An initial public offering is the classic way to take a company public, but many crypto companies bypass the regulatory scrutiny with a backdoor SPAC merger

By Connor Sephton

If you want to sell stock in an American company to the public, traditionally you hold an initial public offering, better known as an IPO.

An IPO starts with the long, arduous, and expensive process of filing an S-1 Registration Statement with the Securities and Exchange Commission (SEC).

Of course, the purpose of an S-1 is to make sure companies are disclosing everything the public needs to know to make an informed decision about buying shares in your company, otherwise known as securities.

Which is something cryptocurrency companies tried to avoid by holding initial coin offerings, and why the SEC stomped so hard on the ICOs, suing the likes of DAO, Block.one, Telegram, and currently Ripple, levying multi-million-dollar fines and even forcing some companies to return the money raised to investors. Telegram was forced to return $1.2 billion of the $1.7 billion it raised from investors — giving them a very large haircut — as well as paying an $18.5 million fine.

And while several crypto companies have recently launched successful IPOs, there are several other routes to going public. Among them are direct public offerings, the “mini-IPOs” carried out under the SEC’s Regulation A, or the “private placement” sales under Reg. D — which severely limit the amount that can be raised or the number of investors eligible to participate.

Another more aggressive way to decrease SEC scrutiny is the increasingly popular SPAC, which is a backdoor that involves being acquired by a public company created especially for that purpose.

The old-fashioned way

Until recently, crypto had, by and large, opted out of IPOs. Top U.S. exchange Coinbase was the largest “pure” crypto company to go public, and it took the direct listing route, avoiding underwriters.

But that changed when trading platform…

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