Private Token Sales: Challenges and Specifics
Before launching a token through ICO or IDO, projects conduct private token sales which aren’t open to everyone interested.
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Strategic and seed investment rounds are also considered private token sales. At this stage, a project raises preliminary investments and garners initial funds for development, and investors acquire coins at the lowest prices.
Let's examine the peculiarities and challenges of private investment rounds, list the available private funds, and discuss how to become a participant.
Benefits of Private Sales:
- Opportunity to obtain tokens at the lowest price.
- Insider information from the team about potential launchpads and listings.
- Access to information about tokenomics and the economic model of the project, even at the MVP stage (or earlier).
- Increased allocations. Unlike ICO/IDO, private sale participants often can invest significant amounts.
In this way, strategic and seed investors get privileges both in terms of access to exclusive information and in terms of investment flexibility.
List of Private Investment Funds
We’ve already covered the top cryptocurrency funds. They include firms such as Pantera Capital, Multicoin Capital, Andreessen Horowitz (a16z), Arrington XRP Capital, Coinbase Ventures, Polychain Capital, and Sequoia Capital.
Most of these private investment funds can be located on the cryptorank.io website in the “Funds” section. Here, companies are categorized by investment volume, type, location, etc.
A List of Private Investment Funds. Source: cryptorank.io
Becoming a Private Investor: Who's Eligible?
Most cryptocurrency funds have an application process on their official websites.Any individual who doesn't have legal issues in their respective country and possesses a significant amount of free capital can become a private investor. It's not uncommon for solo private investors to be expected to have at least $100,000 on hand to invest across various ventures.
Moreover, if there's enough collective interest, a larger cryptocurrency community can even establish its own fund. Considering that the minimum investment in some projects can hover around $50,000, these funds can split that amount across multiple investors, broadening the base.
The Rough Terrain of Private Coin Sales:
- A notable challenge is that private investors often find their tokens subject to extensive vesting periods or locked in for a specific timeframe post-listing.
- Retail investors, especially those without sizable capital, sometimes venture out on their own, seeking cryptocurrency funds. This can lead them into the treacherous waters of scams and swindles.
- From the moment of a private sale to the listing of a token on an exchange, the waiting game can stretch from months to even years.
- A thorny issue remains the lack of robust legal safeguards. This becomes particularly troublesome when projects adjust their tokenomics, shift their listing dates, or alter other pivotal aspects that were foundational to an investor's initial decision.
Zooming in on the legal dimension, there's often a document in play known as the SAFT (Simple Agreement of Future Tokens). However, reality has shown that a SAFT might not always offer the ironclad security guarantees investors seek.
SAFT: A Mirage of Investor Protection?
While the SAFT sets out clear parameters regarding tokenomics, developmental trajectories, and the direction and magnitude of funds allocation, the landscape isn't always stable. Changes can, and do, occur—sometimes during the rollout of a project or just before a token's listing. This can leave funds grappling with terms they didn't sign up for.
There are inherent weaknesses with the SAFT. For starters, the world of cryptocurrencies remains a wild west in many countries, with a clear lack of regulatory oversight. Then there's the issue of cryptocurrency initiatives seldom anchoring themselves legally in any one jurisdiction, complicating potential legal disputes. Finally, let's not forget that a significant chunk of crypto ventures, especially those emerging from the DeFi sector, operate under a cloak of anonymity, making accountability a challenge.
Therefore, a cryptocurrency fund's primary mandate becomes clear: meticulously vet projects and wisely spread investments. After all, it's about safeguarding assets and not putting too many eggs in one unpredictable basket.
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