Only Listed ICO Investment Company on Quest to Dominate Blockchain and Crypto Sectors
article PUBLISHED: 29-08-2018
Much has been written about blockchain and cryptocurrency over the last 12 months so investors would be familiar with the most popular currencies including Bitcoin, Ethereum and Ripple. Yet whilst interest is high, knowledge surrounding how to invest in cryptocurrencies and blockchain technologies could be improved.
One ASX listed company is helping investors understand the crypto and blockchain markets, and is also the only ASX listed company that can invest directly in an Initial Coin Offering (ICO).
Today’s company invests across different assets and classes, which ensures diversification of its portfolio. These classes include potential start-ups, private equity and listed equities.
However, it is the company’s work in crypto and blockchain that is setting it apart from other Listed Investment Companies (LICs).
The company has two business models for its digital assets:
- A token discount model
- A token allocation model
Business model number one sees the company invest early in digital currencies before they list. This secures the company the largest possible discount to list price, of up to 70%. The company is then able to sell the asset at profit when the time is right.
Its second business model enables the company to negotiate with an issuer to become one of the largest holders in a token, with the opportunity to secure up to 20% of the token before a company lists. Again, once listing has taken place, the company can then look to exit at a profit.
We will look at these models in more detail shortly, however a good example of the company in action can be seen in its recent activity with its Acudeen token.
The Singaporean-based Acudeen successfully listed on digital currency exchange BTCEXA on August 24, with today’s company securing 20% of all Acudeen tokens in June. Based on its initial listing price of $0.005 per token and a market cap of US$50 million, the company could be holding $10 million worth of tokens which it will look to convert into Australian dollars when practical.
Here’s what the deal could look like for this highly active LIC: If Acudeen sells a minimum of $1 million of their tokens on any digital currency, the company will collect $250,000. If they sell a minimum of $5 million of their token, today’s company collects a 6.25% success fee.
That’s a great deal that is certainly worthy of investor attention.
Of course the initial list price may not reflect the price at which the tokens are traded, so investors should seek professional financial advice for further information if considering today’s stock for their portfolio.
The Acudeen deal demonstrates the lucrative fees and large percentages of token floats the company is inheriting ... and it has a solid inflow of ICOs on its books. That means further fees earned across a large percentage of new token holdings.
Just prior to the Acudeen deal, this company also made a strategic investment in CCP Technologies (ASX:CT1) to fund growth and blockchain product expansion. CT1 is already generating revenues in the US and Australia with partners that include Vodafone and SigFox.
On the back of this, Penta Global will co-invest with today’s company. Our focused company will receive a capital raising fee for facilitating Penta Global’s investment in CT1. Interestingly, Penta Global is developing a blockchain solution for rice growers in China, so there is a great deal of synergy here.
Overall, the company has 11 core investments, including publicly listed stocks, private equity and digital assets. With over $8 million in cash in the bank and $3.5 million in investments, the company looks to be in a strong position moving forward and now with an unwavering focus on crypto and blockchain, it will definitely be looking to build on its current foundations.
The following is a snapshot of what you should know:
- Strong cash position
- Successfully integrated service and success fees to amplify returns
- Strong diversity across its portfolio
- Demonstrated value-adding ability
- Modest operating costs whilst actively managing its investment portfolio
So let’s now look in more detail at this fast growing company and introduce you to...
First Growth Funds
Whilst we could go into detail about First Growth Funds Limited’s (ASX:FGF) overall portfolio holdings, it is its move into cryptocurrency and blockchain which is expected to be the game changer for this Listed Investment Company.
In fact, just today FGF announced it had successfully lead an investment in YPB Group Limited (ASX:YPB) and secured two strategic partners in DigitalX (ASX:DCC) and Blockchain Global Limited (BCG) as part of the transaction.
Blockchain Global already has a significant relationship with FGF, but we’ll get to that in a second.
Of today’s investment in YPB, FGF is entitled to fees described which includes US$350,000 success fee, 6.0% capital raising fee, 6.25% token sale commission on tokens sold by YPB directly and will receive 20% of all tokens in YPB.
DigitalX and Blockchain Global have agreed to advise and assist YPB with the development and distribution of the ‘YPB tokens’ and to introduce the tokens to international exchanges.
This deal is another canny strategic move by FGF as it cements its place in the industry and looks to build on its growing success with the help of BCG.
FGF’s move into the crypto and blockchain space was made possible following a strategic investment by Melbourne-based BCG, a multinational venture builder focused on investing and growing blockchain enabled businesses.
The partnership has given FGF the ability to identify early stage token and blockchain business opportunities. Through its early identification, FGF can negotiate terms with these businesses and invest at compelling valuations.
That is an advantage in itself, but BCG’s network of top industry professional and its large ecosystem of blockchain/ICO businesses, gives FGF the opportunity to exit its blockchain investments at a profit either through acquisition within the ecosystem or by selling upwards to later-stage blockchain funds.
Here is the ecosystem mapped out:
As you can see, that is a lot of traffic flowing through to FGF and with a solid business model in place, the company is well positioned to make the most of this partnership.
So let’s deep dive into business operations.
Business... not quite as usual, but certainly unique
The first facet of FGF’s business model is its Token Discount Model. It looks exactly like this:
As we stated earlier, FGF invests in early digital currencies before those currencies list and it invests at a 25% to 70% discount to the listing price.
When the crypto company lists, as long as the digital currency trades above the discount price, FGF is then able to exit at a profit.
In its token allocation model, FGF will invest in a company to become one of its largest holders in its digital currency token. That token is acquired at a low valuation in combination with a large stake before the company lists on an exchange.
Interestingly there is no ICO or capital raise in this process and funds are raised as the tokens are sold, after listing. Once all this is complete, FGF looks to covert the tokens to Australian dollars.
Here’s a visual illustration of this process at work:
In this allocation model, FGF is able to secure a profit if the digital currency trades above a $1.25 million market cap. In this instance, FGF has invested up to $250,000 at a market cap of $1.25 million to secure a 20% holding. Hence once that market cap is reached, it’s money in the bank.
These two business angles in conjunction with its referral fee business and success fee business combine into something quite powerful and potentially lucrative.
Although it remains a speculative stock and investors should take a cautious approach to any investment decision made with regard to this stock.
Through its referral fee model, FGF can be paid up to $350,000 for referring its portfolio of companies to market makers and exchanges. This fee is typically payable from the first one raised by the company. Furthermore, FGF receives up to 8% on capital raised on an ICO or through a successful listing.
When compared to its peers, FGF has a lot working in its favour.
Take for instance a comparison between FGF and DigitalX, which you can see is part of the ecosystem above.
Readers of sister publication Next Tech Stock will be familiar with DigitalX (ASX:DCC) as we have covered this stock extensively as well. Check out our article: DCC Moves Into Crypto Education and Investment to Capture Part of US$7B Industry.
In that article, you will get a sense of just how powerful the crypto and blockchain space is – we will look at that shortly.
In essence, both DCC and FGF offer exceptional value, however whilst they share the same features and same major shareholders, FGF has a powerful advantage in that it can invest in Crypto, which it does to great effect.
When you consider DigitalX has a market cap of $65 million with a mix of US$5.44 million cash, cryptoassets trading on exchanges of US$3.8 million and licensed funds of US$0.4 million totalling US$10 million at the last quarter, you can see the blue sky potential for the A$22 million capped FGF.
Now it’s just a matter of the market waking up to the potential this company is showing.
Certainly, some in the industry have kept a close watch.
Zeroing in on FGF
In July this year, Zero One Investment Research released a comprehensive report on FGF not only highlighting how BCG’s investment in FGF was a genuine game-changing moment for the ASX small cap, but also why FGF offers a “rare source of listed company exposure to what we believe investors should see as a means of accessing highly diversified, non-correlated alpha.
Zero One expects FGF to build on its current portfolio of ICOs and Digital Currencies, whilst also increasing its equity in blockchain companies, which could be the biggest value-add to investees.
Zero One has a Revalued Net Asset Value (RNAV) on FGF of $0.021. That’s a 75% upside from current market prices and based on current core assets.
So, just what are FGF’s assets?
FGF’s digital assets
Including Acudeen, has a portfolio of eight digital currency assets, having recently added three new digital currency token investments. These new additions include:
EQI Bank – aims to launch the world’s first licenced and fully regulated offshore bank providing Private and Corporate Banking, Cryptocurrency Custody, Fiat and Cryptocurrency Lending and other services.
Human Protocol – are the currency tokens used by data scientists to access data labelling using hCaptcha.
It is worth noting these businesses intend to list on digital currency exchanges in the second half of 2018, which could be quite lucrative for FGF and would certainly vindicate its strategic move into these businesses.
The details of any potential ICO will be made in or accompanied by a disclosure document, anyone wishing to acquire ICOs will need to considering the disclosure and complete any relevant application form that should accompany the disclosure document.
Here’s a look at the overall digital asset portfolio:
Meanwhile, FGF’s existing and new equity investments include Cloud Lumen, a company that has developed an energy efficient, customisable LED lighting fixture technology. The technology is already used by corporates and government across North America. CryptoData Vault, of which FGF has 15.5% of the total tokens, is developing a secure and compliant hardware wallet and FGF is entitled to a 6% success fee on the sale of its tokens for providing advisory services.
Then there is FGF’s large and small cap listed investments which look like this:
For a full list of companies check out FGF’s latest quarterly. FGF has a lot in its nest and many of its assets look to be coming home to roost.
The company isn’t resting on its laurels either. There is a great deal of news flow to come as it actively looks to invest in high value opportunities.
Here’s a look at what is coming up over the next few months:
Clearly there are planned investments in the pipeline and further revenue generation to come, which could have extremely positive effects on not only the bottom line but also on market cap and investor sentiment.
One thing we are yet to cover in detail are the blockchain and crypto sectors.
Why blockchain and crypto
Blockchain is providing a new economic movement for the global economy.
This video gives you a quick look at why the movement is so important and who the main players are:
FGF is doing all it can to be a major player in this movement and as the only listed player that can invest in an ICO may be more advanced than you might think.
It does still have some work to do to become a major player, so seek professional financial advice for further information if considering this stock for your portfolio.
Here’s another video discussing how blockchain will radically transform the economy:
Then there is cryptocurrency. Forbes alludes to currency being the new money. In this article, the author explains, “cities around the globe are leading a revolution in the creation of complementary ‘civic currencies’ – some digital, some physical – designed to promote local economic development, foster active citizenship, and invest in sustainability while building a sense of community cohesion.
When you look at some of the companies FGF has invested in, it seems many of them are dedicated to creating some sort of social, civic or economic good.
FGF has not only jumped on a movement that could have untold economic impact, but also on companies that could have an overall positive sway on society.
That is something to think about.
You have seen the timeline. There is a lot to come from FGF by way of news in the 2019 financial year.
More acquisitions should lead to greater revenues and bigger profits.
The Acudeen deal was just another feather in its cap and today’s announcement that it has successfully lead an investment in YPB Group Limited (ASX:YPB), and secured strategic partners DigitalX and Blockchain Global Limited as part of the transaction, is full blown proof that this is a company moving in the right direction.
It may not be long then, until we see FGF’s market cap begin to exceed expectations.