Do crypto VCs just dump token onto retails?
Recently, there is a lot of discussion about VC + CEX resulting in the dumping of tokens on retail investors. And crypto just don't need VC.
However, let's examine historical data from the University of Florida's analysis of 9,127 IPOs from 1980 to 2022, which reveals some interesting data points. Hopefully we can get some insight from Tradfi.
1. IPOs usually perform worse than the market if held for 3 years (-19.5%). The main factor that affects performance is the scale of sales during the IPO. Higher sales can lead to better performance, but it may still not be as good as the overall market.
2. Actually, VC-backed IPOs have shown better market-adjusted returns compared to non-VC-backed IPOs
3. But during the dot-com bubble, VC-backed IPOs performed poorly.
4. After the dot-com bubble, there was no significant difference in stock performance between VC-backed and non-VC-backed IPOs.
My take:
It's not just in crypto, but also in the stock market: buying stocks right after they go public is basically a recipe for losing money. During liquidity events, VCs and teams naturally want to cash out. It's not just crypto VCs taking advantage of retail investors; it's simply market logic, resulting in higher selling pressure. The 10x returns seen after listings on centralized exchanges during previous bull markets are merely a strategy to attract users.
If we look at all IPOs, VC-backed companies actually perform better. However, in certain periods such as the dot-com bubble, when the market is full of hype and low-quality IPOs, just like the crypto market today, VC-backed IPOs actually perform worse. The frenzy in the secondary market can lead many short-sighted VCs to rush unprepared companies to IPO, which also leads to worse return performance. However, once the market cools down, there is no significant difference between the two.
The primary factor that explains post-IPO returns is revenue scale. However, token listing criteria often do not prioritize revenue. It is important to have further discussions on this topic and hopefully, exchange listing teams will shift their criteria towards more fundamental metrics.