Waterloo-based messenger app Kik has announced a fundraising cap on the public sale of its new crypto-token that implies a US$750 million-plus valuation for the digital currency.
In May, Kik became the first company outside the cryptocurrency community to announce plans to launch a crypto-token, a digital asset transferred through a shared database, or blockchain, that ensures all transactions are verified and permanent. Kik is hoping users will earn and spend the cryptocurrency, called Kin, for doing things that add value to the app, such as hosting popular group chats or developing bots.
To raise money, Kik is also selling 10 per cent of the total supply of Kin to institutional investors and members of the public through a fundraising mechanism called an initial coin offering, or ICO. On Monday, Kik posted announcements on Slack and Reddit saying it is accepting registrations for the portion of the ICO that’s open to the public, which it is capping at US$75 million.
“We wanted to give our active communities the first opportunity to register,” said community manager Tanner Philip on Slack. “We will use the information collected during registration to ensure a fair and broad distribution to as many people as possible.”
Kik spokesman Rod McLeod declined to disclose how the 10 per cent of Kin available through the crowd sale will be split between institutional investors and members of the public, making it impossible to calculate the total valuation the company is attaching to the new cryptocurrency. Kik plans to hold 30 per cent of Kin in reserve, in the hopes it will grow in value as more and more people use it and provide a source of ongoing revenue.
Even if Kik has only set a very small amount of Kin aside for institutional investors, the US$75 million cap on the public portion puts the total value of the new cryptocurrency at US$750 million or more. Kik was last valued at US$1 billion in 2015 following an investment by China’s Tencent Holdings Ltd.
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Gil Luria, director of research at D.A. Davidson & Co., said it’s unlikely the company would be able to raise US$750 million for its new cryptocurrency through traditional venture capital.
“Investors and participants in ICOs are not necessarily as savvy and not necessarily as aware in valuation methodology for new products and new services,” Luria said. “If you don’t value an investment correctly, you lose a lot of money.”
But Kik chief executive Ted Livingston believes the cryptocurrency might finally provide a revenue model for digital companies without the user base to compete with the likes of Facebook Inc. and Google parent company Alphabet Inc. If he’s right, Kin could eventually be worth even more than its lofty initial valuation.
Kik also has something other cryptocurrencies don’t have: A large, engaged base of active users. Despite having few applications for mainstream consumers, the 850-plus cryptocurrencies in existence have a combined market capitalization of US$145 billion.
Sid Kalla, a researcher with the cryptofinance analysis company Smith + Crown, said that large user base could pose challenges for Kik if Kin catches on quickly, however. Kin will use the blockchain of a cryptocurrency platform called Ethereum, which has well-known technical challenges as it copes with the growing number of people and businesses using it.
“You always have to consider the scalability of the underlying blockchain as well,” Kalla said. “It may not be able to handle the kind of use cases Kik may come up with in that size of user base.”
McLeod said Kik plans to release the breakdown of tokens being distributed to private and public investors in a week or two. The public token sale is scheduled to launch some time in the fall.