This episode delves into the complex calculus behind crypto company IPOs, exploring which firms are poised to go public and the critical factors determining their success in the public markets.
The Current IPO Climate and Crypto's Place
- The speaker begins by acknowledging a perception that the IPO market might not be fully open for crypto, but expresses a more optimistic view, citing Coreweave's strong performance and the return of traditional fintechs to public markets.
- Circle's anticipated IPO is highlighted as a significant event, though the speaker cautions that its success might not be directly transferable to all crypto companies.
- There's an expectation that more companies, not just crypto-specific ones, will attempt to IPO.
- For crypto companies like Fireblocks, the speaker, referencing what a traditional investment bank like Goldman Sachs might advise, notes they may not yet fit the "ideal profile for a public company." This also applies to Chainalysis, despite it being a strong SaaS business.
- Kraken is presented as a different case, with an expectation it might go public, possibly next year, due to its exchange model scaling quickly with the market.
- The speaker anticipates some "less than ideal" companies might "force themselves public" due to a need for liquidity. This could involve SPACs (Special Purpose Acquisition Companies, which are shell corporations that raise capital through an IPO to acquire a private company) or smaller IPOs raising $100-200 million, rather than the billion-dollar figures seen with companies like Circle.
- "I expect that we'll have a number of less than ideal people that we're not even talking about who would just say I need liquidity."
Challenges of Sub-Scale IPOs: The Exodus Example
- The discussion shifts to the practicalities of being a public company, particularly for smaller entities, using Exodus, a crypto wallet company, as an example.
- Exodus went public with a market capitalization (the total value of a company's shares) initially around $800 million to just over $1 billion, on a revenue run rate (projected annual revenue based on current earnings) of $50-$80 million.
- A key observation was that the stock price "languished post IPO until they actually got covered by analysts." This underscores the importance of analyst coverage for visibility and institutional investment.
- The speaker explains that companies with market caps significantly below $3-5 billion (often derived from a 10x multiple on $300-500 million revenue) struggle to attract analyst attention.
- Without analyst coverage, large institutional investors are less likely to deploy capital, leading to limited liquidity and potentially undervalued stock prices.
- Exodus's experience is framed as a "subscale IPO" – not a major success, but not a failure either, potentially offering a model for others, though questions remain about underwriter appetite.
Categorizing Potential Crypto IPO Candidates
- The speaker, likely drawing from an investment or strategic perspective, outlines three categories of crypto companies that could be next for an IPO:
- Scaled Market Equivalents:
- Companies like Kraken, which already have a public market trading equivalent (e.g., Coinbase) and possess significant scale. Their trading multiples and business model are somewhat understood by public markets.
- Recurring Revenue / SaaS Models:
- Businesses such as Fireblocks or Chainalysis, which exhibit characteristics of Software as a Service (SaaS) companies.
- These are valued for recurring revenue, attach rates (the rate at which additional products/services are sold to existing customers), and manageable churn (customer attrition), making their performance less directly dependent on crypto market volatility.
- Market-Dependent Businesses (High Volatility Risk):
- Companies whose revenues are highly correlated with the price of Bitcoin and other cryptocurrencies.
- These face challenges due to variable revenue and the risk of being perceived merely as a "Bitcoin tracker" if they haven't diversified before going public.
- "You don't want to be CEO of publicly traded company that only has like direct exposure to the market volatility."
- *Strategic Implication for Investors:* This categorization provides a framework for assessing the risk and valuation profiles of potential crypto IPOs. SaaS-like models may offer more stability, while market-dependent ones carry higher volatility.
Anchorage's Path to Public Markets: A Focus on Trust
- The conversation then pivots to Anchorage, with the speaker (who appears to have an insider's perspective on Anchorage) discussing its unique position and IPO considerations.
- Anchorage has a long-term goal of being public, primarily because its core offering is "trust."
- As the first and currently only federally chartered bank in the US for crypto custody, being public would further enhance this trust. "The only thing that is more trusted than a federal bank is a publicly traded federal bank."
- This enhanced trust is seen as directly benefiting Anchorage's business model.
- Being a bank means Anchorage already has robust financial reporting, audited financials, and regulatory compliance processes in place, which are significant preparatory steps for an IPO. The speaker compares the intensity of getting a bank charter to preparing for an IPO, suggesting Anchorage is well-prepared.
Strategic Considerations for Anchorage: Optionality Over Mandate
- Despite the benefits, the decision to IPO for Anchorage is framed by strategic questions, echoing sentiments from leaders like the Collison brothers of Stripe: "What do we have to to gain?"
- If a company has a strong balance sheet, ample capital, consistent growth, a diversifying business model, and market leadership, the immediate necessity of an IPO is less pressing.
- The key question becomes whether access to public markets is required for specific strategic initiatives, like issuing debt or other capital market strategies. For Anchorage, the current answer appears to be "no."
- While the trust benefit is significant, the approach is about "walking towards and making sure we're ready for it," emphasizing optionality.
- "We want to be in a situation where if we think it's the right thing at that moment we're ready and we can immediately do it but not something that is kind of like a big mandate that we must do it."
- Venture investors on the board naturally have an interest in a public listing, but there's no undue pressure.
- *Actionable Insight for Researchers:* Anchorage's strategy highlights how regulatory status (like a federal bank charter) can become a unique selling proposition and a driver for public market ambitions, distinct from pure revenue growth or market share.
The Overarching Benefit of Trust for Specific Crypto Businesses
- The interviewer reinforces the idea that for a business like Anchorage, being a public company inherently builds more trust.
- The speaker agrees, stating, "That is one of the biggest benefits for Anchorage and one of the biggest reasons why that would be good for us."
- However, this specific, heightened benefit of trust derived from being public is emphasized as particularly potent for Anchorage's business model, more so than for a generic crypto company.
Conclusion:
The journey to a crypto IPO is multifaceted, favoring companies with scale, SaaS-like recurring revenues, or unique trust-based advantages like Anchorage. Investors and researchers should monitor analyst coverage for newly public crypto firms and assess how a company's core business model aligns with the demands and benefits of public markets.
