The Wall Street Journal reported yesterday that the messaging app Telegram is having to issue debt to issue investors (ie take a loan). This is because a surge in its popularity means its running costs have gone up.
Now Telegram had already raised money – nearly USD 2 billion, in fact – from investors a couple of years ago by issuing them equity in the form of crypto tokens, typically called security tokens.
The general consensus was that it would raise even more money by a more public sale of tokens, which was hotly anticipated. (Security token offerings, or STOs, had started becoming rather popular in 2019.)
But The SEC came down hard on Telegram. In this case, during the lawsuit, it emerged that
Telegram had funded more than 90% of its operating costs using the investors’ cash.
The subsequent ruling made Telegram shut down the token offering and its whole TON blockchain programme, refund its customers’ money and pay a USD 18.5 million fine. That ruling put an end to the whole fledgling security tokens industry because the court forbade Telegram from raising money even from non-US entities
the court found that Telegram likely lacked the practical ability to prevent a foreign initial purchaser from reselling Grams [to US persons]. and
TON Blockchain would grant anonymity to Gram holders and also allowed third parties to build their own wallets
– Court confirms Telegram injunction covers non-US purchasers
Back to today. Not only did the courts deny people globally from participating and profiting from Telegram’s rise, Telegram itself needs to raise capital:
To repay its creditors, Telegram is selling five-year bonds that pay roughly 7% or 8% a year, the people briefed on the company’s plans said, with a sweetener that those who buy the bonds would have a preferred allocation at a 10% discount to the listing price if Telegram goes public.
So two things have happened here:
- ~ Telegram leadership has to take time off from actually building their product to raise (debt) capital
- ~ Once again, investors like you and me, whether US persons or not, have no easy way to participate even in this bond issuance, which is at attractive rates even by Indian standards. And lose out on the possibility of preferred allocation for eventual public listing
Instead, access is limited to select people like the actor Jared Leto, the Telegram founder’s friend:
Asked whether he had invested in Telegram’s bond offering, or would invest in an eventual initial public offering, Mr. Leto responded: “What’s the first rule of fight club?”
There are many arguments in favour of the SEC and courts for shutting down Telegram’s token issuance – a strong case that they violated private placement exemptions.
But what is undeniable is that
- ~ Telegram needs to raise cash it would otherwise have had
- ~ That investors missed out on buying early into the Telegram ecosystem then, and
- ~ That they’re all but certain to miss out on the bond issuance today