Amid the evolving Web3 and crypto ecosystem, a growing number of companies are navigating the path from decentralized startup to operating a digital asset treasury (DAT) model within a publicly traded company. In a recent webinar, Fenwick’s Per Chilstrom, Michael Pilo, and Christopher Crawford teamed up with Christian Lopez, managing director and head of blockchain and digital assets at Cohen & Company Capital Markets, to examine the three structures that have emerged as common pathways: private investments in public equity (PIPEs), de-SPAC (special purpose acquisition company) transactions, and reverse mergers. Each approach carries unique considerations for sponsors, foundations, and investors.
Here are some key takeaways from the conversation:
In a PIPE transaction, a public company raises capital by selling shares directly to accredited investors in a confidentially marketed private placement. The primary advantage of this option for sponsors, foundations, and investors is faster execution, since PIPE transactions typically are structured so as not to trigger shareholder approval under current applicable stock exchange rules or be subject to potential Securities and Exchange Commission (SEC) review until after the PIPE closes.
PIPE structures can also provide quicker liquidity for investors compared to reverse mergers or de-SPACs, making them more appealing to investors aiming to capture near-term trading opportunities. After the PIPE transaction closes, the public company registers the investors’ shares for resale with the SEC in order to provide this liquidity.
Those interested in establishing a DAT through a PIPE transaction with an existing public company should consider targeting a public company that has a low market cap and is eligible to use Form S-3 (or F-3, as applicable) “shelf” registration statements. The ability to quickly launch an at-the-market offering on Form S-3 immediately following the deal announcement allows the public company to capitalize on post-announcement share price appreciation to grow net asset value.
Support for the DAT from the foundation of the token is becoming increasingly important, especially for non-Bitcoin/Ethereum tokens, to maximize marketability within the DAT ecosystem.
In a de-SPAC transaction, a SPAC merges with a private crypto project to take it public. Because the SPAC has no operating business, it offers a liability-free shell and built-in shareholder base. In principle, this could lead to better aftermarket performance depending on the redemption levels of the SPAC public shareholders at the time of the de-SPAC closing.
As of now, no DAT-focused de-SPAC transaction has closed. Without completed deals, we don’t yet have empirical evidence on how these structures will trade post-closing.
However, de-SPACs require filing and clearing a proxy/registration statement with the SEC, effectively going through a “re-IPO” process, obtaining shareholder approval, and meeting stock exchange rules, resulting in a significantly slower process than with a PIPE transaction.
A reverse merger is when a private company (e.g., a crypto project or foundation) merges with an already public company to become publicly traded. This option achieves a similar end state as a de-SPAC but carries more potential liabilities due to possible issues including outstanding indebtedness, contracts, securities, and other obligations of or litigation from the pre-combination public company.
Given these factors, many market participants now prefer the “clean shell” of a SPAC over a traditional reverse merger when speed is less critical.
In limited cases, a reverse merger may be attractive if the public company offers strategic business, assets, or capital benefits that a SPAC cannot provide.
Management Team is Critical: Investor confidence is influenced by the management team’s blockchain expertise, public-company experience, capital-markets savvy, and ability to execute in both crypto and traditional finance environments.
Size and Technical Setup: Overly large capital raises may create structural sale pressure from PIPE investors; sizing the deal according to the token’s liquidity profile is key.
Regulatory Dynamics: NASDAQ has informally communicated interpretations regarding the application of its rules to transactional features, such as in-kind token contributions, foundation involvement, and board changes, which potentially trigger shareholder approval requirements in PIPE deals.
Foundation Alignment: The degree of foundation involvement varies, but structured governance and stewardship can yield stronger setups and better-maintained token economics.
Market Backdrop: Volatile conditions, liquidity lockups from SEC delays, and recency bias in crypto markets may affect timing and syndication.
While the PIPE, de-SPAC, and reverse merger pathways all remain viable options for establishing a DAT model in an existing public company, PIPE transactions may be preferable for their speed and liquidity. Reverse mergers are largely being replaced by cleaner de-SPAC alternatives when an extended timeline is possible, though the de-SPAC model still awaits its first true DAT case study. Across all approaches, sponsors should consider weighing capital structure, market conditions, and alignment among management, foundations, and investors to set their DAT up for long-term success.
To view the webinar, register here and click the “On-demand program access” link.
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