- The Block found that Bakkt has privately discussed a post-money valuation near the $740 million mark
- Bakkt is yet to launch, and with high costs, will need serious volumes to secure returns for Series A investors
- ICE agreed to a capital-refund window with external investors, previously unreported
Bakkt, ICE’s yet-to-launch crypto exchange, is being valued at around $740 million following its Series A funding round, sources close to the project tell The Block.
The exchange raised $182.5 million last year, pitching a futures trading platform geared at institutions. Its approximate $740 million post-money valuation means ICE may have sold up to 25% of shares to external investors like Galaxy, Pantera, Microsoft and Starbucks – the latter having contributed no capital in return.Post-money valuation is a company’s value after outside financing and/or capital injections are added to its balance sheet. In this instance, it also includes the equity allocated to Starbucks related to their partnership.
Now, a key question is how investors will make their projected returns based on their $740 million post-Series A valuation given the current regulatory barriers and a five-month delay in launching. Indeed, Bakkt’s proposed fee of $0.50 per contract is rather small, some equating it to less than 1 basis point. The next cheapest U.S. trading option is currently at 8 basis points.
“From a cash-flow perspective, Bakkt will not be earning much based on their proposed contract fees, so they really need a lot of volume,” said one source.
“A lot of things will need to line up for investors to receive returns that they would typically expect for a Series A.”
Investor “get-out” clause and future valuations
Crucially, if Bakkt cannot deliver on its plan to garner institutional adoption – or find other cash-flow sources – investors have equity redemption rights provided by ICE, according to their SEC filing. Page 60 notes “non-ICE partners in Bakkt hold a put option to require us to repurchase their interests subject to certain terms.” Delays in execution may allow investors to realise this exit and trigger their put.
According to one source, Bakkt could now feasibly increase its pre-money valuation to $1 billion at its next raise. It could then sell a series of similarly-priced preferred shares without diluting itself much; in other words, raise substantial capital without giving up too much equity.
However, investors will be looking at evidence Bakkt can match its share-price predictions before granting it unicorn status.
“If I was looking to buy a piece in the emergent regulated US digital assets derivatives game today, I would look at cheaper alternatives which are further ahead in execution,” one investor said. “They’ve paid too much.”
Bakkt declined to comment.