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.
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.
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.
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.
Remember when you went to the store, wrote a check at the counter, then immediately wrote down that transaction in your checkbook ledger? Of course, you do. You are also probably thankful for that mobile app on your phone telling you exactly how much money is in your bank account, showing you in an instant where it is going, while also allowing you to move money, sell stock and buy bitcoin. My how times have changed. Access, ease and transparency are just part of today’s expected business processes. Or are they?
Now, think of the last private equity transaction you executed. How were those docs executed? Did you sign them physically or electronically? Where did you store them? Did you wire funds or send a check? How did you record the transaction? How are you keeping track of performance? How much in time and fees did doing one deal actually cost you? If your answers to these questions involved a mostly manual process piecing together lack-luster software solutions with a lot of fees and time – welcome to private equity.
It is more than a little ironic that those funding the greatest innovations of our future are stuck using processes dating back to the manual checkbook.
Among the many things we want to make easier and faster in private equity, closing a deal was right at the top. EVERYTHING involved in executing that transaction from uploading docs, to transferring funds (quickly and at a fraction of the cost of wires), and finally creating that entity to hold individual investors is all done within Venture360’s platform.
Don’t take our word for it. Have a look for yourself at Try.Venture360.co