Ripple Fundraising

CEO Brad Garlinghouse stated at the World Economic Forum 2020: “In the next 12 months, you’ll see IPOs in the crypto/blockchain space. We’re not going to be the first, and we’re not going to be the last, but I expect us to be on the leading side… it’s a natural evolution for our company”.

To date, Ripple has raised a colossal $293 million over three rounds. The last of which, series C led by Tetragon, accounted for $200 million on its own. By going through an initial public offering (IPO), Ripple will be offering shares on the open market for the public to buy. This is yet another step towards raising money for the firm, how much will be raised is yet to be seen.

Ripple & XRP

Ripple has been on the receiving end of a class-action lawsuit because of XRP. Several investors having lost money by investing in XRP in early 2018 attacked the company in the court of law on the grounds of XRP being an unregistered security.

We had discussed in an earlier journal that the main issue faced is that the creators of the XRP ledger are the founders of Ripple. Had it been otherwise, this discussion would likely not be where it is today.

This last round of fundraising (IPO) partially addresses whether XRP is a security or not, as Ripple is raising funds through usual financing routes.

This goes to show the separation that truly exists between Ripple the company and XRP the virtual asset. For the latter, Ripple is a proof of concept. By a “direct route” we see no connection between Ripple going public and XRP’s market price.

Ripple IPO Date

Ripple's IPO was anticipated in late 2020 after CEO Brad Garlinghouse hinted they would be among early crypto IPOs. Though no exact date was set, an IPO is a natural progression for the company.

Ripple's IPO plans are currently on hold due to an ongoing lawsuit with the SEC, which began in December 2020. The SEC claims Ripple’s sale of XRP tokens was an unregistered securities offering, a charge Ripple disputes, arguing that XRP is not a security.

Ripple’s CEO, Brad Garlinghouse, has indicated that the company may proceed with an IPO once legal clarity is achieved. Experts expect a resolution in 2024, but the timeline remains uncertain as proceedings could extend beyond that year. Until the lawsuit concludes, no official date or timeframe for the IPO is available.

Moreover, Ripple has not submitted the required paperwork (Form S-1) to the SEC, which is a mandatory step for launching an IPO. As a result, there is no official IPO date set.

Potential Impact of the IPO

• Valuation Speculations: Ripple's last known valuation was approximately $15 billion as of early 2022. However, estimates vary, and its potential IPO stock price will depend on various market factors at the time of listing24.
• Investor Interest: There has been significant interest from institutional investors, as evidenced by a private roadshow held by Ripple in April 2023 to gauge interest in its potential public offering13.
• Future Outlook: Analysts believe that once the legal issues are resolved, Ripple could move quickly towards an IPO. The market is keenly watching how this situation develops, as it could have broader implications for the cryptocurrency sector as well.

Programmatic Sales

Ripple owns 60% of the total XRP supply, most of which was placed into cryptographic escrow accounts to avoid uncontrollable supply hitting the markets. 1B XRP is released each month to sell to institutions. Not many people are aware that Ripple’s XRP sales are divided into two sections: “Institutional Sales” & “Programmatic Sales”.

Programmatic Sales are sold at the open market through exchanges and represent the larger portion of sales. Ripple’s intention is to affect the market as little as possible, and hence, these sales are designed to only represent a small percentage of the XRP trading volume.

However, as data providers have faked volumes for a while now, Ripple ended up selling multiples more than they should have to the open market. The latter caught Ripple’s attention, which led to a decrease in these sales as they adjusted to the real (lower) volume.

In order to endure the “big vision” startup process, Ripple requires massive amounts of funding and hence the three rounds and now the IPO. The institutional and programmatic sales assisted them further. Garlinghouse had stated “We would not be profitable or cash flow positive [without selling XRP], I think I’ve said that. We have now”.

This paired with further funding via an IPO will help Ripple financially which may further reduce the selling pressure experienced by XRP on the open markets. This indirect link, is how this Ripple IPO may positively impact XRP’s price.

Company vs Token

This IPO showcases a very important point missed by many crypto investors. Buying the token does not equal investing in the company behind it. This misconception was created as this is a new asset class, and people are only fond of equities. By going public, Ripple will stress that this is not the case. Ripple’s success as a company is naturally not the success of XRP, and the opposite is also true: XRP’s success is not limited to Ripple’s success only.

Frequently Asked Questions

What are the main factors delaying Ripple's IPO?

Ongoing Legal Issues: Ripple’s lawsuit with the SEC, ongoing since December 2020, alleges unregistered XRP sales. This creates uncertainty about Ripple's ability to go public in the U.S.

Regulatory Hurdles: Ripple’s CEO calls the U.S. regulatory environment "hostile," citing unpredictable SEC actions, even against approved companies like Coinbase.

Market Conditions: A bearish fintech market and poor performance of major firms are leading Ripple to be cautious about its IPO timing.

Strategic Alternatives: Ripple is considering other jurisdictions with clearer regulations for its IPO, potentially delaying until U.S. regulatory clarity improves.

How might the SEC lawsuit impact Ripple's IPO plans?

The SEC lawsuit is the primary obstacle to Ripple's IPO. It creates uncertainty around Ripple's regulatory standing, making it risky for the company to go public. Until resolved, Ripple’s ability to file for an IPO remains constrained, affecting investor confidence and regulatory approval timelines.

What impact could an IPO have on the value of XRP?

If Ripple's IPO proceeds successfully, it could boost XRP’s value as investor confidence increases and market visibility expands. The IPO could validate Ripple’s business model and technology, enhancing demand for XRP as its utility and credibility receive a potential uplift.

How might investor sentiment shift if Ripple's IPO is successful?

A successful IPO would likely improve investor sentiment, signaling regulatory approval and business stability. Investors might see Ripple as a pioneering, compliant crypto firm, encouraging broader market participation. This could lead to increased confidence in Ripple’s products and XRP, enhancing overall market appeal.

What impact could an IPO have on Ripple's competition in the blockchain payment sector?

Ripple's IPO could intensify competition in the blockchain payment sector by legitimizing its business model and attracting capital for further development. This may push competitors to innovate or seek regulatory approval themselves, reshaping the competitive landscape as Ripple gains a market and technological edge.