Security Tokens and S.T.O.s. The new trend breaking the venture mold.

Security tokens are about to revolutionize how capital is raised for companies, VCs, and real estate funds; and Venture360 is excited to bring this new technology to companies and investors around the world. In this post, we are going to talk about why utilizing the latest technology to tokenize securities is so game-changing, and how you can be part of the revolution.

What are Security Tokens?

If you’re having a hard time understanding why blockchain and decentralized transactions are paramount to the future of finance, give this a read. Not only will blockchain revolutionize the banking industry, but it will create a digital ledger where transactions in cryptocurrency (i.e. Bitcoin, Ethereum, etc.) are stored in chronological order on a public domain.

Blockchain allows for the creation of cryptocurrencies, aka tokens, which have three primary functions:

1. Payment Tokens—used as a form of currency or payment such as:

  • Recurring subscriptions
  • Apple Pay/Android Pay

2. Utility Tokens—used to allow access to a service or application such as:

  • Permission to use a private network
  • Right to vote on an issue or proposal

3. Security Tokens—used as a digital asset which falls under federal security regulations such as:

  • These tokens represent a security or financial interest such as ownership in company stock.
  • If you can own it, you can tokenize it.

Since we’re talking about security tokens specifically, let’s break that definition down a little further. Simply put, a security token is essentially the ability to tokenize an asset. The value of the token is determined by the item it represents—in this case, the value of the company you own stock in.

READ: Capital Formation – the killer app for blockchain?

There are many benefits to tokenizing private securities. As the game stands today, an investor’s portfolio is comprised of ownership in many different companies for which they most likely paid cash. The gains on those investments have yet to be realized because there is no easy and secure way to sell these securities.

They’re locked into that investment for an indefinite amount of time with no concrete way to visualize how it’s performing. Company cap tables are unreliable and often not kept up to date. Not to mention, the CEO is busy and probably forgot to send the last few investor updates.

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Why Tokenize?

This brings us to the heart of the matter. Why should companies tokenize their securities?

Cap Table Manages Themselves

Ready for a bold-faced lie you’ve been living with? Cap tables don’t have to be managed.

Oh, you’ve been paying crazy money to manage your cap table? Well, stop.

Cap tables are a record of transactions, so if you process those transactions on say the blockchain and issue tokens—Boom! Cap tables are easily and securely done.

This isn’t a Trend

If anything, this market is going to continue to grow. Many leading experts predict that a significant shift from utility tokens to security tokens will take place in 2018. Why? Primarily due to compliance and regulations. While initially, companies were hesitant to offer tokenized securities due to concerns over violating SEC regulations, those apprehensions are rapidly dissipating.

The future of securitized tokens is on the rise as we start to see regulation-compliant platforms like Venture360 provide the tools necessary to make security tokens a legitimate alternative.

READ: The State Of Security Tokens

Transparency

Each and every transfer done on a platform using tokenized securities must go through a ledger on the blockchain. This means that all transactions are documented and visible to anyone with approved access. Now, both the company and the investor have real-time access to the same information. This is undisputed, entirely accurate information. All the time. That’s huge.

Liquidity

  • You know what’s fun? Investing in really cool technology at the early stages.
  • You know what isn’t fun? Not being able to access money when you want.

In fact, this one simple word liquidity represents the #1 reason less than 1% of accredited investors are actually investing in private companies. Tying up money for 7–10 years just isn’t that appealing.

But what if companies could build their own, privately controlled markets with tokenized assets? Well, we are stealing our own thunder a bit now.

  • The most important thing a company needs to consider in tokenizing securities is controlled distribution.

We all want to have our cake and eat it, too. This is why Venture360 built controls into our tokenization platform, allowing companies to tokenize their securities. Issuers control the subsequent distribution of these tokens in privately controlled markets.”

We go into exactly how all of this works in later posts, and we are always open to suggestions about how you would build your own market.

Well, what are you waiting for? Ready to be part of the revolution?

Learn more at Liquifi.com

Observations from the Most Influential

At the beginning of this year we embarked on a quest to highlight those in the venture communities across the globe, who were influencing change. Being a software company that powers the global venture community, we know and understand the people on the ground doing deals and supporting companies as they grow aren’t necessarily the ones front and center in the press.

So, we reached out to local communities and asked them to nominate the Most Influential investors to showcase the unsung heroes of our industry. What we found surpassed even our expectations. Not only has the response been overwhelmingly positive, but we’ve also been able to get to know a lot more about our fellow investors.

This post highlights some of the things we’ve learned so far, and to let everyone know nominations close on May 1st, so there is still time to nominated your Most Influential investor here.

The Nominees

Our nominees so far have been worldwide with roughly 65% being based in the US, and the rest from around the globe. A special thanks to our team members that put in some early mornings and late nights to adjust for other time zones. After the United States, the United Kingdom came in second for volume of nominees, with the vast majority in and around London. Other notable clusters on the list include India, Germany, and Singapore.

Industries ranged FinTech to FemTech, number of funds from 1-8, and AUM between $20M and $525M. The overwhelming trend that we noticed was value-add. Almost every fund had taken this concept to a whole new level, whether it was marketing for high-end retail brands, or deep corporate connections into the logistics industry. One group maintains a job site to help attract talent for their portfolio companies, while another curates an invitation-only network for founders.

Enough about our observations, we’ll have plenty more to publish in the coming months. Let’s talk about the nominees and what we heard from them.

Industry Trends

We asked each nominee what industry trends will continue to develop over the coming years. What we didn’t expect was the wide variety of answers. Our nominees hail from all over the globe, with a wide variety of focus areas, but the answers varied even among similar geographies and investment profiles.

Automation and AI

While this covered a wide variety of areas, this is the clearest theme so far. One group looks at the sensors required to manage automation, from manufacturing equipment to mining vehicles. Another has several investments spanning the communication of connected devices, and the security around it. AI will help manage all of this information and continue to provide value over a wide variety of industries.

Corporate Partners

We saw a rise in corporate influence across the board. More major companies are launching internal funds to augment R&D and to solve internal problems. In addition, they are building more intentional relationships with VCs to help de-risk their future investments. To paraphrase one nominee, the low hanging fruit is gone, so the companies currently seeking capital require more specialized knowledge and access to resources that are much more difficult to acquire.

Founders as Investors

A sizable portion of the nominees had at least one founder on the team and a number were made up entirely of founders. According to many of them, this provided unique insight into identifying the right leadership teams and in offering much more specific expertise on operating the business. This fits with the deeper level of value-add that we observed as an overall trend.

In Conclusion

Launching the Most Influential List has been a fantastic experience so far and we couldn’t do it without your help, so thank you! We are continuing to accept nominations through May 1st so please send more influencers our way. We will continue to post updates as we narrow down the list, so keep an eye out. Lastly, this is about the community, so we welcome all thoughts and feedback on what we’re doing well and what we can improve.

Nominate

 

Provide Feedback

How do I issue electronic shares?

Image result for stock certificates

The more important question is why do you want to issue electronic shares? Before we jump to an answer, let’s take a quick walk through the history of stock certificates.

The oldest known stock certificate dates back to 1606, they were originally required to allow transfers while still providing proof of ownership, and were often necessary to receive dividends. As times changed, proof of ownership was transferred to companies over the actual owner, or bearer, of the stock. And as technology has improved, the regulatory bodies have increasingly looked to streamline this process. In the public markets, paper certificates are all but extinct.

Private markets are much more decentralized, so the move to streamline any type of operation is much slower. Some companies still issue paper shares, and some investors still ask for them. These are being replaced by electronic shares, but that too is unnecessary.

You can use something as simple as a spreadsheet to track your shares but probably shouldn’t.

Before we talk about the pros and cons, we should first outline the types of shares. Paper shares fall within a category called certificated shares. These are the standard share issued and require that a certificate, whether it it paper or electronic, can be issued.

Uncertificated shares only require that a ledger is maintained, no actual certificates ever have to be issued. In order to do this, companies simply add a provision to their bylaws authorizing uncertificated shares. While the specifics vary by state, most businesses are incorporated in Delaware for its favorable business regulations. You can find more information here and here.

A spreadsheet is free and can be fairly simple when you’re getting started but it does have a number of limitations. First, there is no system of record, meaning that anyone with a copy of it can make changes and there is no formal way to track which one is the ultimate truth. Your attorney, your accountant, your investors and several employees will likely all have a copy. When there are discrepancies, how do you resolve them?

The cost of a spreadsheet is hidden in the risks.

At the end of the day, your ledger is just a record of transactions. Those transactions occurred for specific reasons, such as closing a round of investment. Future investment rounds, awarding employee options, or increasing the value of your company would trigger changes but they could also be connected to other systems and automated. In addition, the ideal system should provide transparency to all parties.

At Venture360, we’ve put a lot of thought into this process. We built our platform to simplify the investment life-cycle, helping manage the relationship from the initial introduction, to reporting after future rounds have been raised. Your Cap Table (capitalization table) is just a record of the process for all parties, so you can stop worrying about what you forgot to put in that spreadsheet and get back to building your business.

New Zealand powered by Venture360

Queenstown-New-Zealand-1024x683

If you don’t live in New Zealand, you probably have it on your bucket list of places to visit. Do it. You won’t be disappointed.

In addition to being one of the most beautiful and ecologically diverse places on the planet, it also boasts a vibrant and growing entrepreneurial ecosystem.

Venture360 is proud to partner with amazing organizations like the Angel Association of New Zealand and Venture Centre to help build the economy of the future – by entrepreneurs, for entrepreneurs.

So, why Venture360?

“After evaluating a number of solutions and options, Venture360 was the clear leader meeting our requirements for integrated deal flow management, member participation and portfolio administration.” – Ben Reid, Canterbury Angels

What makes Venture360 so unique is that our system is designed to support funding activity from application to exit. We perform all of the below functions seamlessly within a beautiful interface and for a fraction of the cost of competitors offering only one of these features:

  • White labeling – our software, your brand
  • Multiple tools to build any type of application with a custom link for your main website
  • Customizable deal pipeline to support any screening process
  • Complete company profiles with unlimited file storage, discussions tab, and cap table management
  • Fully electronic deal closings with imbedded eSignatures and funds transfers
  • Custom metrics reported by companies and analyzed at the portfolio level
  • Portfolio management and tracking
  • Complete fund management with capital calls and investor reporting
  • Automatic portfolio reporting through a custom API scraping public data
  • And so much more!

The entrepreneurial ecosystem of the future is going to be built on efficiency. Not just in how quickly money can be raised but also in how those transactions are executed and tracked. The industry has been waiting a long time for one system to do it all – but the wait is over.

The future is here, and it is powered by Venture360.

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Here are some fun facts about the amazing country of New Zealand:

  • Only 5% of NZ’s population is human- the rest are animals
  • Four seasons in one day is not that unusual
  • Unlike Australia, New Zealand does not have any dangerous or poisonous animals (with the one tiny exception of the Katipo Spider)
  • In NZ you will hear the word “kiwi” quite a lot – on one hand, there is the native flightless bird and the kiwi fruit, but it is also used as a slang term for a New Zealander
  • New Zealand was the first major nation to have universal suffrage – In 1893 it became legal for all male and female citizens of New Zealand to vote
  • Auckland is the largest Polynesian city in the world and is also known as “the city of sails”. It has more boats per capita than anywhere else in the world
  • New Zealand is a plastic nation – many personal financial transactions are made with a card – credit or otherwise. Most shops offer EFTPOS (similar to the UK Chip and Pin which appeared two years later) and cash is seen less and less. So ensure you bring a credit card to NZ if possible.

Get out your passport and go getcha some.