It’s official: Filecoin, a blockchain project created by Protocol Labs, has raised nearly $250 million following a private “pre-sale” and public initial-coin offering – all without having a viable product to market.
According to the Wall Street Journal, the hotly anticipated ICO raised nearly $250 million after opening its offering to the public on Thursday. Thanks to a promise to offer discounts to the earliest investors, the Filecoin site crashed during the first hour of the public sale due to “overwhelming demand.”
“Because of heavy traffic on the site, the coin offering was paused when it started Thursday, raising some doubt about where the endeavor will end up. On Saturday, the firm announced it had reopened the token sale at 2 p.m. EDT. The outage was caused by a flood of orders, the firm said.
After fixing the initial issue, the firm took more time to double-check orders. There were some minor issues, such as some investors accidentally paying twice, that the firm said it is correcting, adding that all investments were correctly accounted for.”
Those who are unfamiliar with the company can be forgiven for their incredulity at the amount raised. Filecoin has been aided by a well-orchestrated media hype campaign, beginning when Wired published a feature story about the project, comparing it to “Pied Piper,” the fictional company from the popular HBO sitcom “Silicon Valley.”
The company’s idea is simple: allow users to receive payment in cryptocurrency for donating unused hard-drive space to Filecoin’s network.
In addition to the $193 million raised from the public, the project also raised about $52 million in a presale involving several prominent venture capital firms, including Sequoia Capital, Andreessen Horowitz, Union Square Ventures, and Winklevoss Capital.
And the total raised could rise, as the public sale is expected to continue for another month.
“Going by reported totals, it appeared the fundraising is already about 70% complete. Even if Filecoin’s fundraising stopped at this point, it would be a large deal, $245 million in virtual currencies when combining the venture-capital round with Thursday’s offering. The figure would top the $232 million raised by San Francisco-based Dynamic Ledger Solutions Inc. for its Tezos service earlier in the summer.
Filecoin’s “presale” round came from venture-capital funds including Sequoia Capital, Andreessen Horowitz, Union Square Ventures, and Winklevoss Capital.
Protocol Labs, based in San Francisco, was founded in 2014 by technology entrepreneur Juan Benet. Its Filecoin initiative is designed to allow users to exchange empty storage space on their computers for tokens. Users can earn tokens for contributing space on their hard drives, or can use tokens to buy space from other users.”
More alarmingly, Protocol Labs hasn’t yet built the Filecoin network – it’ still in the whitepaper stage.
In exchange for their money, investors are receiving only a promise to deliver Filecoin tokens once the network has been launched. Presently, the company hasn’t specified when the release date might be. To be sure, Filecoin’s promise echoes the tactics used by the Ethereum Foundation, which funded the protocol’s construction with a “presale” in 2014. Investors didn’t receive their tokens until the protocol went live in the summer of 2015, nearly a year later.
But while Ethereum yielded massive returns for anyone willing to bear the risks in the beginning, some wonder whether Filecoin tokens will be worth anything once they launch. Considering that the overwhelming majority of ICOs flounder, investors have every right to be concerned.
“Token prices, which initially began at $1.30, would start on Saturday at $4.68, rising along a defined price function, and offering investors various vesting periods, with higher discounts for longer vesting periods. The tokens being bought in this sale won’t be delivered until the Filecoin Network launches. Currently, there is no launch date set.”
In what might be considered a vote of confidence, the Securities and Exchange Commission has apparently signed off on the Filecoin ICO, according to a story in the New York Times, which reported that the Filecoin team worked with a law firm to “structure” its ICO in a way that would appeal to regulators.
And though the long-term viability of Filecoin remains uncertain, the success of the offering has a broader significance. It affirmed that ICOs are already changing public markets in profound ways. In just a few short months, they’ve transformed from an internet novelty to a serious threat to the dominance of investment banks that have traditionally controlled the process of raising money from public markets. As WSJ points out, both Filecoin and Teza, the second largest ICO with about $230 million raised, are comparable to the size of Blue Apron’s initial public offering, which raised $300 million, and even raised more than the average IPO from 2016.
“The offering route has allowed firms to raise amounts that are comparable to other avenues of capital raising. Blue Apron Holdings Inc., for example, raised $300 million in a June initial public offering. In 2016, the average U.S. initial public offering raised about $219 million, according to Dealogic.”
ICOs have now raised $1.3 billion this year. And a team of analysts at Pitchbook believe the total will climb to $1.7 billion by year’s end. That’s a lot of money for a stack of whitepapers.