The Block: Kraken’s team is flush with IPO talent, even if it’s not quite the right time

Kraken is filling its C-suite with seasoned executives experienced in taking companies public even as the crypto and initial public offering markets are struggling through equally bad dry spells. So, what gives?

The firm appears to be betting that the short-term pain being felt in digital assets today will be transitory, and seems to be positioning itself for the long-term — and a listing of some kind.

The crypto exchange last month appointed Dan Ciporin, CEO of a special purpose acquisition vehicle (SPAC), to its board of directors. It has also hired highly experienced financial executives including C.J. Rinaldi as chief compliance officer and Carrie Dolan as its chief financial officer, as well as appointed Blair Halliday and Guy Hirsch as managing directors for the U.K. and U.S. respectively.

Dolan and Ciporin in particular have experience going public, with both having helped spearhead LendingClub's IPO in 2014. At the time, it was one of the biggest public offerings in U.S. history. It also led to Dolan later having to pay a fine for questionable practices in that case.

The recent hires reflect a maturation of both the company and the industry, said a Kraken spokesperson in an email. The exchange's board is now made up of four members, which include two outside directors, one of whom is an independent director.

“If they do [have more independent directors], that's probably a sign of two things,” said Patrick Daugherty, a partner at international law firm Foley and Lardner. “One is maturity, as that's the right way to do it. And it could also be a sign that they're looking to go public, either by de-SPAC or IPO.”

It wasn’t that long ago that the exchange publicly said it was looking to follow in the footsteps of Coinbase with a direct listing. It now remains coy about the status of those plans.

"We are always exploring various strategic options to ensure we continue to do what’s best for the business and its stakeholders," said Kraken's spokesperson.

Going public The U.S. IPO market was “virtually closed in 2022 due to higher volatility and falling valuation multiples,” according to PWC . IPO proceeds were the lowest since the Great Recession of 2008 and 2022 brought the lowest number of offerings since 2016, its data showed.

“It's still pretty challenging the market, it's still pretty volatile, the Fed keeps raising interest rates,” said Owen Lau, an equity analyst at Oppenheimer who covers rival exchange Coinbase. “It's not just crypto companies, overall, the listing environment is challenging for everybody.”

The company declined to share its valuation or fundraising status with The Block, but using Coinbase as a reference would put it in the multi-billion-dollar range. That publicly-traded company’s market capitalization is $18 billion, down from $85 billion when it went public in 2021. That’s still big enough to be considered too large to go public via SPAC.

Several crypto companies that have tried to list via SPAC have faced increased regulatory scrutiny. A recent Wall Street Journal report said that the SEC reviewed the going-public filings of Bullish, Circle and eToro for nearly a year or more and still didn’t declare them “effective.”

Given the collapse of 3AC and FTX, among others, the SEC is likely to be even more cautious with any crypto companies, Daugherty said.

Still, IPO capital markets may start to open up in the middle of 2023, said John Todaro, an equity analyst at Needham who covers Coinbase. He too expects enhanced scrutiny from U.S. regulators, which could delay the listing processes

“We remain optimistic that the IPO market will normalize over the course of this year and that next year will end up being a healthy year of issuance,” Nick Einhorn, director of research at Renaissance Capital, said in an email. “That said, the cryptocurrency space has had its own specific challenges, exemplified by but not limited to the FTX collapse, and public equity investors will likely approach the section with caution in the near term.”

Tough times In November, Kraken laid off 1,100 employees, 30% of its workforce, alongside dozens of other companies cutting jobs to stay alive. It also stopped operations both in Japan and Abu Dhabi. Despite rampant layoffs across industry, Kraken has had a hard time filling certain positions, with the chief roles of operations, product and technology still open, Forbes reported . Kraken declined to comment on whether those roles had since been filled. Founder and CEO Jesse Powell is supposed to be stepping down and handing the reins to David Ripley, the firm’s former chief operating officer, though the timeline there is unclear.

"As Kraken grows, we’re actively searching for the right people to strategically bolster our business operations," said Kraken's spokesperson. "We will share further details of new appointments as we recruit the right individuals that both share our company ethos and offer a strong value proposition for our business."

Meanwhile, Dolan was linked to a corporate scandal at LendingClub with the SEC accusing its CEO and Dolan of inappropriately adjusting fund returns shared with investors. The CEO resigned and paid a $200,000 fine and Dolan paid a $65,000 fine. Still, she's one of the executives that will add needed competency in the industry.

"Carrie will be instrumental in expanding our business and laying the foundation for the next growth stage for our company," said Kraken's spokesperson, adding that Ciporin also has "a proven track record of recognizing long-term winners that transform the way we connect and transact."

“Regardless of the intent, regardless of the particular path, adding somebody who's very experienced in traditional capital markets is a good thing for a crypto exchange as it grows and tries to fit into the broader financial services industry,” Daugherty, the lawyer, said.

And if another crypto exchange were able to list in this environment, then it could be good for the crypto ecosystem, Oppenheimer’s Lau said.

“To me, if more and more crypto companies can go public, it will get more investor interest at the same time,” Lau said. “It will further the business model of this industry.”

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