Companies looking to raise funding through an ICO without having to juggle regulations from the SEC and numerous other regulatory bodies around the world can now conduct simple plug-and-play ICOs.
Securitize, a new company spun out of tokenized VC fund Spice VC, is launching a platform Thursday that has a host of know-your-customer (KYC), anti-money-laundering (AML), and international ICO rules built right in. The platform has two key selling points: It promises fundraising companies, and their investors, peace of mind that they’re in full conformity with domestic and international laws. And it enables a new era of venture funding, where investors can buy-in knowing the assets are completely liquid from day one.
22xFund, whose ICO begins Thursday, is a collective of 30 startups from the summer 2017 cohort of 500 Startups. While they each raised seed funding from 500 Startups and individually raised another $23 million combined from traditional VCs and angels, they were finalizing their Demo Day presentations just as Tezos, FileCoin, and a number of other high profile ICOs were happening.
“We thought, we’re supposed to be innovators. Are we going to be in San Francisco and follow the same [traditional VC] path as everyone else here? And why should we compete with each other?” 22xFund’s Ashwini Anburajan explained by phone to VentureBeat. The group came up with the idea to issue a tokenized security asset that would give investors equity in all 30 companies at once. “This hasn’t happened before — a security in 30 different companies,” she said.
Most of 22xFund’s 30 startups have no blockchain tie-in. Their goal is to use tokens purely as securities. The allure is that ICOs enable a more “democratic” fundraising process, Anburajan explained. Traditional VC is “a very elite investing game,” she said. “We’re trying to get people not just in Silicon Valley but from all over the world.”
For investors, meanwhile, it’s the liquidity of the assets that is a major draw. “In a VC fund, your money is frozen for 10-15 years sometimes,” Anburajan said, whereas tokens can be sold or traded at any time.
Lottery.com is another company planning to ICO on Securitize, although it hasn’t yet set a date. Like the 22xFund collective, the company has pulled in $23 million to date from traditional funding sources.
Lottery.com wants to launch a global raffle game, which means it will need more funding and will need to guarantee the raffle is “provably fair.” The company decided the best way to deliver that guarantee was to run the raffle on a blockchain, so an ICO made sense for the fundraise, CEO Tony DiMatteo told VentureBeat. The team talked to a number of people who were planning platforms with built-in rules for international ICOs, “but nobody was ready,” he said, except Securitize.
For DiMatteo, making sure Lottery.com’s token is a security that is traded under all of the appropriate regulations is key. VCs and family offices have been watching the ICO market, he said, and they’re eager to enter it.
“But there’s uncertainty from institutional investors about which ICOs involve securities and which are legitimate.” By ICOing very clearly as a security, “we’re giving investors that same level of confidence as if they were doing a traditional investment,” he said. “This is the future of all ICOs.”
And it sounds like he could well be right. Securitize Chairman Carlos Domingo confirmed to VentureBeat that a number of other players are moving quickly to offer similar platforms. “In 2018 we think you’ll see a massive explosion in this kind of platform. We are ahead of everyone else, so we have an edge, but we are definitely not going to be the only one in this market,” he said.
Securitize uses a prospective investor’s passport or other ID to fulfill KYC requirements. Based on that user’s disclosures, the platform will inform them how much they are legally allowed to invest and in which companies. Some countries, for example, require that investors be accredited. And in the U.S., a company may only take up to 99 investors.
The Securitize team built the platform in about six months. It depended heavily on its lawyers to analyze ICO rules country by country, and then its technical team had to implement those rules into the platform. It covers “all major jurisdications,” Domingo said, noting that investors from countries where ICO investing isn’t legal — such as China and Korea — would automatically be blocked.
Securitize will charge ICO issuers a one-time fee as well as an ongoing monthly fee for use of the platform. Exact pricing will depend on the projected size of the ICO as well as other factors.
The company is currently a 10-person team based in Palo Alto, California. It is a spin-off of Spice VC, an FCA fund registered in the U.K. The Spice VC team — a group of three general partners with experience in traditional VC — struck out in May 2017 to form a fund to invest in security tokens. After they had gone through the process to make sure they were globally compliant, “a lot of people started contacting us, interested in replicating our model,” Domingo said. And that’s where the idea for Securitize was born. The off-shoot business seems to have outpaced Spice VC itself, since Spice’s own fund doesn’t plan to launch its ICO until February.