Token Seed and Private Sales – Investors trust Venture Capital to gain more money, as they manage billions of dollars. What are the mechanisms?
What Is Venture Capital?
First off, let me explain what Venture Capitalists and Venture Capital firms truly are. It might be wise for you to skip the next topics if you already know all about them.
Investors provide venture capital to startups by pooling funds from wealthy individuals and investing in early-stage crypto projects. Tokens or equity will be secured by crypto VCs in return for their investors.
In essence, crypto VCs are looking for high-quality projects, securing tokens at a great price, and then giving those insane multiples to their investors.
Contrary to public opinion, most venture capital firms do not make their first move into crypto startups. The projects are instead in a phase of commercialization.
As such, the VC fund provides Capital to help cover costs such as developers, users, and marketing.
Cryptographic projects that launch via an IEO or IDO have usually been working for at least a year before they sell any tokens to the public. What about the funding for all those people working on these projects? Most likely it will come from venture capital. No one works for nothing.
They get a cut of the profits for doing absolutely nothing. I guess. A surprising number of people do not realize that many new crypto projects have no experience in getting additional financial support, strategic planning, legal advice, accounting, and recruiting. It’s the kind of thing many budding techies probably won’t bother with.
A project’s strategic planning may involve things like optimizing its tokenomics, as well as additional finance from top IEO platforms like the Binance Launchpad.
A new project could gain significant benefit from a network of crypto VCs by leveraging those relationships. For example, from a marketing perspective, content distribution, or as a way to obtain preferential exchange listings.
The main purpose of those investors is to supply capital, strategic insight, and networking opportunities to a company. In general, VCs get preferential treatment in private sales because that information is so valuable.
Investing earlier than you and me, these investors are basically taking on a higher level of risk. They also bring their considerable expertise to the table.
I now want to take you through the mechanics of what goes into the shadowy world of crypto private sales now that you know how VCs deal with crypto.
Crypto private sales mechanics?
Although I don’t want to sugarcoat that fact, many shitcoins are not so eager to provide details of what goes on behind closed doors, which is why private sales are shrouded in so much mystery. Shady stuff shouldn’t be talked about if you’re doing it.
In addition, people are usually unaware of where to find the information about these private sales, let alone what to do once they find it. Therefore, many hotels are anxious that cryptocurrency VCs and private sale whales will dump their tokens on token holders. The concerns have likely been discussed in telegram chats by many of you.
In most cases, there are two main rounds of private sales. To begin, there is a seed round in which the token price is determined. Afterward, you go through a private sale.
The general It cannot get involved in IEOs, but it can take part in IDOs. I bet you’re wondering if you could get into the hot project before the average joe if you happened to be involved in a private sale round. Unfortunately, that’s not possible.
These private sales seem to be open to accredited investors willing to invest very high minimums, and most appear to be invite-only affairs. Where do these investors come from? CryptoVCs is a major contributor.
Private Sales & VCs
Then I have a question I need to ask. We should fear these evil venture capitalists making deals with crypto speculators. The Mina Protocol (MINA) is a good case study in this regard.
As they made their private sale rounds publicly available. Basically, Mina sold 75 million tokens for 25 cents each in April 2021 to the general public. About 28% of all tokens were sold at that time.
There were over 205 million tokens sold at the private sale, so while it sounds like a lot, it’s not. When that many tokens are sold privately, it’s inevitable that the pressure will come from early investors.
Let me tell you the truth. In almost every case where I’ve seen public information on a private sale, there is one thing that stands out. Vested terms mean investors get tokens over time instead of having them all at once, which is a smart way to make investors feel like they’re not getting their tokens in one go.
Hence, private sale investors like venture capitalists can’t just dump all their tokens on the market once the project is listed on an exchange, which is probably a good idea for everyone.
There were four rounds of funding done by Mina Protocol before their ICO, including a seed round where tokens were sold for 7 cents in Q4 of 2017.
Series A tokens were then offered for 15 cents in Q4 of 2018.
A strategic unlocked round priced at 25 cents per token will follow in Q3 2020.
For the first three rounds, investors were locked up for 18 months following the ICO, with the unlocking of the strategic round taking place 40 days after the community sale.
This means the early backers did not receive their tokens until 40 days after the MINA ICO, and even then, they were only entitled to receive them if they participated in the strategic unlocked round. Strategic unlock tokens cost exactly as much as ICO tokens.
If earlier backers were able to get the tokens at the same price without restrictions, why would they want a 40 day lockup period? According to the Mina ICO, the cap for contributions was $1,000, so I assume that the strategic unlock tokens had no such stipulation.
I have a question though. When did the 40 days end? Looking at the unveiling schedule, you’d see that the first month of unlocked tokens would likely feature a huge influx of tokens, which could potentially be dumped on the market. Within the next 17 months, however, seed series A tokens, and strategic locked investments will each be released equally and monthly.
Therefore, there will not be an abrupt release of tokens to exchanges like there might be in a glass, instead, tokens will be released gradually to those participating in the private sale. This is called the linear release of tokens. But what does all this unlocking mean for Mina’s price?
Honestly, it’s difficult to separate the influence of private sales and ICO investors. Since Mina was not publically tradable until the 1st of June, over 40 days after the community sale, there was no reason for it to be available. There was a situation where all the participants in strategic unlock were participants in another private event sellers normally have a small portion of their stack to unload, while ICO sellers are allowed to unload the entirety of their stack.
It is not surprising that the price of Mina actually dropped after the coin was listed on exchanges. The Mina token’s price is currently sitting at a bit more than 2.50 per token at the time of this post, despite the hard fall it took after its listing on exchanges. The ICO price increased 10 times as a result. The early birds indeed did very well with Mina.
It’s a tragedy that many people must have bought those tokens at sky-high prices following Mina’s initial listing in June when it first went live.
There would have been a huge difference in price if they had known how much had been unlocked after the ICO. It’s unlikely most people would have touched me then if they were armed with such knowledge.
This lesson from the story is that the schedule for unlocking private sales really does matter. Definitely consider it before you invest in the latest and greatest altcoin that you heard about from your friends.
After the first month of unlocking a project such as Mina, there will not be any nasty surprises.
As I mentioned, the Mina example is in no way representative of all projects, and that does not mean that others should be ignored. Let’s look at those.
Bespoke Vesting Schedules
Usually, vesting schedules are more customized for each project. A portion of these tokens is unlocked at certain points in time. That would be a powerful tool for portfolio managers. Let’s take a look at Injective Protocol (INJ) as an example.
In the Binance research reports, indicators for private and public sales are usually broken down. I strongly advise you to check if there is a Binance research report available for the crypto that you are considering if you want to take your token analysis to the next level.
The company’s private sale rounds number only two. During the seed round for the token, six million tokens were sold for just eight cents a pop, and over 16.55 million tokens were sold at 18 cents a pop during the private sale round.
A pretty neat wagon wheel is also shown in these Binance research reports, showing how much crypto supply is distributed and what percentage of the token supply is sold at private sales and seed rounds.
You can see that percentage by hovering over the part of the article that interests you. It can be seen here that 16.67% of Injective’s tokens were sold in private sales, while 6% were sold during the seed round.
Now, I got out my calculator, which tells me 22.5% of INJ was invested by private and seed level investors. That’s a big chunk of money. Isn’t that a problem?
If you look at the token release schedule on the Binance research reports, you can work this out.
Token unlocks for private sale participants appear in dark gray and the seed round investors in light gray. Each release calendar shows that there are three unlocked dates for each round of sales.
The interesting thing is that the unlock period for the seed round runs a month ahead of the start date for the private sale round. Investors were able to purchase a third of the tokens in the first Injective sale in April 2021. The INJ prize increased during this time, which is interesting.
Injective probably had VC backers who contributed to the private cell round that had some pretty solid diamond hands, or maybe DeFi hype was all the rage back then.
It is just to note that some projects set certain dates to reveal tokens to investors in private sales. You’ll want to be aware of the sudden increase in supply beforehand. It could possibly mean initial investors wanting to realize some gains would increase selling pressure.
Therefore, that is worth watching, and you may even want to avoid buying a particular cryptocurrency until the unlock event has passed. Knowing what private sales entail, what to look for, and how your portfolio may be affected helps you fully understand this concept. Our private sales fair doesn’t allow me to confront the elephant in the room.
Make sure you do the proper research before investing in cryptocurrencies, and you should consult a crypto expert for advice. In the cryptocurrency market, everything can happen because of its volatile nature. It is all a prediction and assumption based on the fact that crypto markets transform over time.
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