What does the future hold?
Investors that enter the cryptomarket will inevitably discover that it’s necessary for them to determine, on their own, what the future may bring, given different circumstances, risks, and contingencies.
None of us were given a pamphlet on what to expect; none of us knows how the market will behave; and most of us are not benefiting from inside information about market gyrations.
But we all must imagine the future.
None of us would have purchased digital assets if we didn’t believe they would rise in value. So at a minimum, each of us has gone through the process of imagining the future with respect to digital assets.
In addition, there are some business and political developments that can substantially impact these projections; and knowing how outcomes might be materially different based on these possibilities is important for making effective investment decisions … or for achieving a level of serenity and confidence in your holdings no matter what the market reflects in the short-term.
When it comes to XRP, there are a few different scenarios that may happen; some are lower-probability while others are higher-probability. I’m going to zero in on one scenario for purposes of today’s article: Ripple Goes Public.
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Silicon valley has plenty of examples of how much money can be raised from an initial public offering. Examples stretch back to the nineties and early two thousands, during the golden age of technology and Internet IPOs.
What’s An IPO?
If you’re completely new to financial topics, the term ‘IPO’ stands for ‘Initial Public Offering,’ which is when a private company, owned by perhaps a small number of people, decides to raise money by creating new company shares and then selling them to the public.
Private companies are (mostly) reluctant to go public, because there are many more reporting and regulatory requirements for public companies. Hence, it’s much easier to run a private company. Private companies don’t have as much ‘compliance baggage,’ and are typically able to respond quicker to different business conditions.
However, private companies do sometimes go public, because of the massive amount of money they receive for these additional shares. This process of raising money through sales of shares is called ‘equity financing,’ and it’s the biggest incentive for private companies to ‘go public.’
“𝘕𝘰𝘵 𝘰𝘯𝘭𝘺 𝘥𝘰𝘦𝘴 𝘵𝘩𝘦 𝘤𝘰𝘮𝘱𝘢𝘯𝘺 𝘪𝘯𝘴𝘵𝘢𝘯𝘵𝘭𝘺 𝘳𝘦𝘤𝘦𝘪𝘷𝘦 𝘢 𝘭𝘢𝘳𝘨𝘦 𝘪𝘯𝘧𝘶𝘴𝘪𝘰𝘯 𝘰𝘧 𝘤𝘢𝘴𝘩, 𝘣𝘶𝘵 𝘵𝘩𝘦 𝘰𝘳𝘪𝘨𝘪𝘯𝘢𝘭 𝘪𝘯𝘷𝘦𝘴𝘵𝘰𝘳𝘴 𝘢𝘯𝘥 𝘦𝘮𝘱𝘭𝘰𝘺𝘦𝘦𝘴 𝘸𝘪𝘵𝘩 𝘢𝘯 𝘪𝘯𝘵𝘦𝘳𝘦𝘴𝘵 𝘪𝘯 𝘵𝘩𝘦 𝘤𝘰𝘮𝘱𝘢𝘯𝘺 𝘢𝘭𝘴𝘰 𝘣𝘦𝘤𝘰𝘮𝘦 𝘪𝘯𝘴𝘵𝘢𝘯𝘵𝘭𝘺 𝘸𝘦𝘢𝘭𝘵𝘩𝘺 𝘶𝘱𝘰𝘯 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘢𝘵𝘪𝘰𝘯 𝘰𝘧 𝘵𝘩𝘦𝘪𝘳 𝘴𝘵𝘰𝘤𝘬 𝘪𝘯 𝘵𝘩𝘦 𝘮𝘢𝘳𝘬𝘦𝘵.”
This comment is no small factor in the decision-making by executives. My guess is that some of the initial Ripple founders would become fantastically wealthy, based only on the value of their original shares in the company.
Capital Gushes During an IPO
Despite the fact that Ripple raises money from their software revenue and sales of XRP, both of these are no comparison to the amount of cash that would be raised by an initial public offering for the company.
In my estimation, Ripple’s IPO should be viewed equivalently to, let’s say, Uber, because Ripple’s business use case should be just as wide-ranging in terms of market. While Uber claims that it’s total addressable market is 12 trillion based on entering new markets like mobility, food delivery, and freight shipping, Ripple’s market share should also be a very sizable share of the remittance and payment market, including P2P, replacement of Nostro-vostro accounts, and B2C and B2B payments.
But perhaps it’s better to look at a collection of IPOs to get a sense of the capital raised:
– Uber: $8 billion
– Facebook: $16 billion
– Visa: $18 billion
– Tradeweb: $1 billion
– Avantor Performance: $4 billion
Where would Ripple end up in terms of money raised?
The analysts and underwriters involved will normally set an IPO price that is loosely (some would say very loosely) based on fundamental business factors of the underlying company.
In the case of Ripple, I think of its valuation based on a combination of its future total addressable market, with an eye towards payment processing software, micropayments, tokenization, payment streaming, and smart contracts. In addition, the analysts would need to account for Ripple’s ownership interests in potentially dozens of other companies as part of the Xpring initiative.
In short, Ripple’s IPO would be sizable.
I’d say it should be judged equivalently to VISA or greater, but to be conservative, we should probably judge a future IPO as an average of the above list, minus a specific percentage.
– The average of all of the mentioned IPOs is $9.4 billion dollars.
– Let’s assume that Ripple will conservatively pull in half of that number in capital: $4.7 billion dollars.
– So, roughly $5 billion dollars cash.
That’s a lot of cash.
And this amount purposefully excludes the market value that would be related to the ‘value of the XRP’ that Ripple holds. I imagine that IPO marketers would attempt to include that in the price, but we will ignore it during our analysis.
What could Ripple do with $5 billion dollars? Well, for one thing, a massive influx of capital will sometimes create unanticipated outcomes. Unexpected wealth could prompt some executives to retire or scale back their work. Usually, however, this influx of capital from an IPO is used by the company to expand and achieve far greater levels of growth than they otherwise would.
Thus far, Ripple has been able to access capital from its consulting revenue, software sales and licensing, and its sales of XRP from its treasury.
But these sources don’t compare to what an IPO could provide. Here’s an interesting comparison:
All Ripple Sales of XRP, ever: $1.1 billion
Possible IPO cash influx: $5 billion
As you can see, an IPO would dwarf what Ripple is able to do on its own through sales of XRP; not only that, but the fact that Ripple is able to sell XRP might actually increase its IPO price. The world of high finance can yield some surprising possibilities.
An IPO Future
So what would a post-IPO future look like for Ripple, and for XRP holders?
Well, for starters, life would be more annoying for Ripple. The money and cash from an IPO has strings attached, and mainly, they take the form of enhanced reporting requirements for the company. Quarterly reports must be prepared. Official audits must be conducted. Financial statements must be reviewed and published.
And a post-IPO company is almost always held to a more strenuous measure of accountability by its shareholders than a private company.
So there will be a cost – and many annoyances – to the executive team at Ripple.
What About The XRP?
A public company would be faced with the same dilemmas that ‘Private Ripple’ is.
However, one key difference is the level of financing and credit. A post-IPO company normally has access to a wider array of credit than a private company, and may have more options to raise cash than merely to ‘increase sales’ of either services or XRP.
So I think XRP programmatic sales would either decline or cease entirely.
I think wholesale sales of XRP to banks and market makers would continue, however, because that involves directly growing the network of RippleNet member institutions that utilize XRP. Selling XRP to these participants is not only expected, but necessary. Programmatic sales are not.
Next Level Marketing
One very positive aspect of having a pile of cash from an IPO would be to spend it on things that grow the market value of either the company, or XRP.
Unlike all the other companies quoted in this article as examples of an IPO, none have had a digital asset that comprises billions of dollars of value.
Currently, Ripple is not speaking a lot about XRP or its ability to grow XRP’s value, because there are ongoing legal matters – both lawsuits and regulatory questions – that necessitate a more circumspect communications strategy.
Once these legal outcomes are etched in stone, the company may see fit to ramp up its marketing; after all, there’s nothing prohibiting a company – whether public or private – from promoting the ownership of an item in their inventory, right?
And this marketing might be phenomenal.
With $5 billion dollars, no amount of potential marketing is out of reach, and the days of Superbowl advertisements about digital assets may be upon us.
To date, the only participants in the cryptomarket that have engaged mainstream advertising and its participants have been the exchanges; and they make money no matter if the market goes up or down.
My favorite ad so far is Kristian Nairn’s advertisement for eToro:
Just imagine if Ripple could afford to hire him for XRP-related promotions in a post-IPO, post-legal-issues world!
Even now, we can see clearly that Ripple has an appetite for acquisitions.
Back when Ripple first hired Ron Will, I thought that it was a sign that the company was telegraphing its intention to go public sooner rather than later.
I was wrong.
What became clearly apparent was that Ripple was more interested in acquiring other companies rather than attempting to create ‘curb appeal’ prior to an IPO. This is great news, as it speaks of even greater levels of confidence by Ripple’s executive team than even I had foreseen; they had clearly mapped out a strategy to acquire companies that represented any possible ‘missing pieces’ to their market rollout of software and services.
They acquired portions of companies through Xpring, although for the most part, these ownership levels are kept private through non-disclosure agreements (NDAs).
And of course, they purchased a chunk of MoneyGram, in exchange for an ownership interest in that company, along with the transformation of MoneyGram’s payment flows to include usage of XRP as a bridge asset.
One thing is for certain; if Ripple has an opportunity to make more deals to integrate the use of XRP, they will do it. Not only that, but because the cost savings have allowed MoneyGram to survive and thrive, my guess is that other remittance processors will be wanting to go the same route and use XRP for settlement.
In short; an IPO would enable Ripple to make dozens of more deals in short order.
The amount of free publicity surrounding an IPO is substantial.
While some part of the process is certainly paid for and is a formal part of an IPO marketing strategy, another measurable part is unplanned, and takes place with the mainstream media outlets providing their unscripted opinions about the event.
Even without an IPO, Ripple has received a large amount of publicity due to its leadership role as the largest private ‘blockchain technology’ related business in the United States. I’ve lost track of how many times news outlets have interviewed Chris Larsen, Brad Garlinghouse, David Schwartz, and others.
With an IPO, the company would receive even more free coverage leading up to its offering.
Orders of Magnitude
When I think of what Ripple would do with the increased amount of capital, it’s reflective of the same types of things they’re doing today, only on a greater scale – and with much larger results.
– Sponsoring educational programs with UBRI
– Funding XRP-related businesses with Xpring
– Making major business deals to expand XRP’s ecosystem
– Engaging with government and political leaders
The results thus far have been amazing.
Ripple is a company that does a lot with very little, and when you think about it, it’s not that they’d do a lot of additional, new activities, but that they’d ramp up their existing plans with huge amounts of capital:
What Factors Dissuade or Prevent an IPO?
One of the goals of an IPO is to achieve the highest-possible company valuation prior to the offering.
If Ripple waits until any pending lawsuits have been settled, it may enhance their ability to achieve a higher-than-average IPO share price.
In addition, an IPO would necessarily distract Ripple’s executive and board staff during times of industry turmoil or change. A private company is able to devote all of its resources to problem solving and business tasks; a public company has to manage its image, prepare financial statements, and interface with thousands of public stockholders.
Essentially, Ripple’s ability to ‘be nimble’ would decrease with an IPO; both before and after.
From an XRP Owner’s Perspective
Most of us – especially readers of this blog – own some amount of XRP.
From our perspective, a Ripple IPO is good news. It allows the company to continue the incredible work they’re already doing, and it eases the pressure off of programmatic sales if they need additional levels of capital. It provides the company with more options for using credit if it needs to.
And the results they’ve already achieved could be considerably enhanced by an immediate infusion of billions of dollars.
While reporting requirements are annoying for the company, my guess is that they’re probably willing to pay that price if it means accelerating adoption of their payment processing software and its preferred digital asset.