Future Venture
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Future Venture

How to Value an IDO

Some Thoughts on Valuation Metrics

In this article, we’ll run through the very basics of how to value an IDO and potential red flags to look out for surrounding the initial valuation. It's an area that is absolutely essential to understand as an early-stage crypto investor, but one so often glossed over in the marketplace.

The valuation metrics we want to understand are threefold, and we’ll work through an example — using MarketMove AI’s launch as a case study with the following tokenomics (found here in their white paper).

MarketMove AI Tokenomics. Source: Whitepaper

Private Sale

MarketMove AI opted to sell 10% of the token circulation via a closed private round. This had a 870BNB hard cap, with minimum contribution of 1BNB and max of 15BNB.

This means they were valuing the company at $3,888,900. This is calculated by the price of BNB on the private sale date — 20th August ($447) and multiplied by the hard cap (870) = $388,890. As they only sold 10% in the round, we then divide by 0.1 (10%) — leading to the $3,888,900 valuation.

Public Sale

Following the same logic as above, the public sale was started on 25th August as BNB was trading around $497. They had a soft cap of 2,250 BNB — looking to raise $1,118,250 for 45% of market tokens, and a hard cap of 4,500 BNB.

This therefore represents a valuation of between $2,485,000 ($1,118,250/0.45) — $4,970,000 ($2,236,500/0.45) — for comparison, we tend to use the higher ‘hard cap’ — in this case $4,970,000 to understand the lay of the land in terms of valuation metrics.

What does this mean?!

Trading and investing often involves making decisions with incomplete information. A good starting point to understanding how an IDO may perform when it hits a DEX (like Pancake swap) is trying to understand what the positioning is of the ‘early median investor’. Whilst not a perfect solution, we can begin to understand what we may (or may not!) expect once the token hits an exchange. In this case, we have to make certain assumptions.

  • Early investors in the private sale were able to buy between 1–15 BNB at a $3,888,900 valuation. Taking a median net position of 7.5 BNB, we can ASSUME that the average investor in the private sale started with a net position of $3,352, and the largest investors in the round hold net positions of circa $6,705.
  • The difference in Mcap from Private to Public sale is around 28%. This means that already, the average investor who got in at the private sale is up $938, and the largest investors may be up as much as $1,877.

This was our thought process having seen the massive valuation they were looking to raise at. Compare this with the majority of raises we see within the early stage crypto space, where the maximum private sale valuations may top out around $1,000,000, and it's absolutely no surprise what happened next…. The sale was pulled since they couldn't get close to even the soft cap.

This is a part cautionary tale to founders looking to raise capital via these routes, part education piece for early-stage investors on how to value projects. Remember — if all investors get in during private/pre-sales, who will be left to buy when the tokens finally hit a DEX?

Take care,
Team Lithium x Jake

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