Kraken’s Investment Platform Completes $13.5 Million Financing Round With Over 2,000 Investors
- The Kraken exchange recently received over $13 million from a BF-hosted funding round.
- To avoid SEC regulations being imposed, BF created a SPV to provide the funding as an illiquid investment.
Kraken has dealt with its fair share of difficulties in the last few months, but a recent funding round shows that investors must still care about it. The crypto exchange gathered the support of 2,263 investors in this funding round, hosted by Bank To the Future (BF). As a result, Kraken’s funding round ended with $13.5 million, as of press time, driven by individual donors.
According to the co-founder Simon Dixon of BF, the purpose of gathering this capital was an effort for Kraken to increase its valuation to past $4 billion. It also aimed to create an opportunity to fund new acquisitions. Most recently, Kraken acquired CryptoWatch, which is a trading and market data platform. They also managed to acquire London-based Crypto Facilities, offering a platform for derivatives and futures trading.
The Kraken exchange is known for being one of the busiest exchanges in the world, considering that it handled over $85 billion in trade volume last year. This volume was made up of 4 million clients, spread amongst almost 200 countries, which could be why the exchanges feels so confident and comfortable in expanding their services to include traditional products and opportunities in the world of cryptocurrency.
For this funding round, BF developed a Special Purpose Vehicle that made it possible for the equity from the investors to indirectly be provided to Kraken, which is better known as an illiquid investment. All of the funding from individual investors are compiled by the SPV, which then acts as a single and independent capital investor.
With this technique, Kraken is not subjected to the same SEC requirement that would otherwise force it to be registered as a public company, based on the laws implemented from the 1934 Securities and Exchange Act. Furthermore, the investors are then not considered a shareholder for Kraken and deciding to float shares through an IPO will be the only way for any of these investors to realize a return. However, these shares could also be realized if the exchange goes through a Management Buy-Out or if another organization decides to purchase it.
In a chatroom for the equity grab, representatives of BF wrote, “This is a high-risk high returns platform – please understand this before investing.” Kraken also explained that this was a preferred share that held liquidation preference, even if it is just speculative, so the risk is not quite as high.
Originally, Kraken was looking to get $10.2 million, and the market interest was enough to extend the length of the investment opportunity after four days. However, the second goal established of $15.45 million, which was not met. Before the official total is announced, the exchange is still waiting to see approximately 250 bank wires cleared, so Dixon is expecting that the final tabulation will be about $14 million.
Based on information suggested by Dixon, the average investor ended up contributing $100,000, give or take. This investment is almost 10 times what the 120 previous funding rounds of BF elicited. Of those investors, Dixon explained that there were 60% of investors to contribute fiat currency, while the rest contributed some amount of cryptocurrency. Typically, BF sees the contributions that are split 70/30 between cryptocurrency and fiat currency, as Dixon explained that most people have a desire to hold on to their cryptocurrency, especially as the prices rise. However, the results of Kraken’s funding around could be due to the benefits that the exchange promised consumers.
The ancillary benefits, according to an email, include:
“CryptoWatch Premium membership, the ability to leverage shares for margin collateral, priority service from our client support team, invitation to Kraken’s exclusive investor chat room, subscription to Kraken’s Daily Hash newsletter and OTC Daily report, bi-annual Kraken investor update, beta access to new Kraken products and features, limited edition Kraken swag, and 5% investment rebate in KFEE.”
Even with all of these perks, one client of BF discovered an interesting result with these investments –
“Your $1k investment bought you about 48 future shares (from 201.612.210 in total). If Kraken is really worth $4bn in the end you own 0,00002380808% of this pie. And that’s about the sum that you invested. But as you are in the ‘preferred share class’ you get your investment back even if Kraken sells only for $112 million. Only if Kraken sells for more than 4bn we will make money.”
Kraken further explained that it is a high-growth company, which surpassed what traditional firms have in their compound annual growth rate. Future cash flow potential drives their value.
Right now, Kraken already offers 24 different crypto assets for trading, and there are 74 trading pairs. Still, the exchange is working to bring in more. As for earnings, the Kraken exchange comes with up to 5% margins on transactions, while the percentage rises to 50% for futures trading, according to claims from the company.
In the chatroom, another representative stated that the exchange is already surpassing others with their trader services and tools. The representative added, “Our product road-map is packed with new features aimed at growing our revenues and increasing our market share.”
In order to view a document that showed exactly how Kraken was valued at $4 billion, Dixon claimed that investors were required to sign a non-disclosure agreement. He added that there also may be a private equity funding round of the same nature, and that this opportunity allows investors to establish greater diversity in their investment portfolios.
The only way for investors to register with the BF platform is to first demonstrate that their income exceeds $200,000, and it needs to have maintained that level for two years. If the investor chooses to collaborate with a partner in their investment, their annual income for the last two years must collectively exceed $300,000, or their overall equity much be over $1 million. The investors are also required to be compliance with KYC regulations.
Over the last few years, the exchange has been a part of multiple investment rounds. In 2011, a seed investment round led to $1.5 million being added to their capital. A Series A funding round in 2012 rose brought them to $5 million, and a second Series A funding round brought the company $100,000 more in 2016.
During all of these investments, the exchange has also managed to establish relationship with seven banks and payment partners.