Kik, the $US1 billion Canadian messaging app operator, is planning to raise $US125 million through an initial coin offering on September 12.
Kik, which was founded by a group of college students in 2009, is used by over 300 million people with 40% of American teenagers using the app, according to the company.
ICOs, a red-hot way to raise money using the technology behind bitcoin, have exploded this year with over $US1.8 billion raised year-to-date, according to data from financial technology analytics provider Autonomous NEXT. They have allowed some companies to circumvent traditional fundraising methods, such as from venture capital and via the capital markets, to raise millions of dollars in a matter of seconds.
The massive growth of the ICO market is viewed by many people in financial services as a bubble, with some firms using the method as a way to raise vasts amount of money without offering an actual product. To raise money through an ICO, a company issues a new digital currency that can either be spent within its ecosystem, a bit like Disneyland dollars, or used to power part of the business.
Kik’s ICO will create a new cryptocurrency called Kin, which will be used within the app for transactions. According to Tanner Philip, a product manager with the firm, the company hopes Kik’s 300 million users will help drive the adoption of the new digital currency across digital platforms.
The $US125 million “hard stop” for the capital raise is close to $US5 million more than what the Ontario-based company has raised in venture capital. Already the firm has raised $US50 million through the new cryptocurrency in a presale with investments from cryptocurrency hedge funds Pantera Capital and Polychain Capital as well as from venture capital firm Blockchain Capital. The public sale for the remaining $US75 million will take place in two weeks on September 12.
Only 10% of the total supply of Kin will be sold during the ICO. 60% will be held by the so-called Kin Foundation and released based on a rewards system to folks who precipitate Kin transactions, according to Philip.
“If I am a game developer and I can create an environment in which users are transacting Kin between each other, then I would be rewarded,” Philip said.
Kik’s ICO will be one of the few open to US investors. In July, the Securities and Exchange Commission said that ICOs can sometimes be considered securities — and as such are subject to strict laws and regulations. In order to avoid such regulatory requirements, many ICOs since then have been closed to US investors.