Reg A+ security token offerings are the future of capital raising
Where are we now and what’s it going to take for Reg A+ security token offerings to take off?
By Vanessa Malone
Just last month, a major milestone for both the blockchain and financial communities was accomplished. Blockstack and YouNow became the first Reg A+ token offerings to be qualified by the SEC. These qualifications allowed them to broadly market their offerings and accept investments from the general public.
This week, Blockstack announced its success in raising more than $23 million through its token offerings which included a Reg A+ offering and a Reg S offering to investors outside of the U.S.
Why is this a big deal?
Until now, the majority of security token offerings(STOs), aka digital securities offerings (DSOs), were conducted utilizing Rule 506(c) of Regulation D (Reg D). In a Reg D offering only high-net worth individuals, or accredited investors, are able to participate.
Reg A+ on the other hand, gives fans, customers, and other interested parties access to early stage investment opportunities alongside accredited investors. But as we’ve discussed, Reg A+ works best for specific types of companies and it wasn’t clear if a blockchain-related company mixed with the complexity of marketing an investment opportunity to the general public was going be a viable candidate for Reg A+.
Blockstack’s success presents a strong Reg A+ DSO use case for companies interested in the new capital raising method.
This week we want to discuss where we’re at and what we believe it’s going to take for Reg A+ security token offerings to really take off.
What we have now:
The democratization of investment opportunities
A series of events from both the Wall Street and blockchain industries led to the emergence of digital securities. One key feature of Reg A+ digital securities offerings is their ability to maintain core values of the blockchain community, i.e., accessibility and transparency, while increasing access to investment opportunities previously restricted to high-net worth individuals.
According to Blockstack, more than 4,500 individuals and entities participated, and “early community members were able to participate at the same price as the 2017 Regulation D offering to Accredited Investors.” This truly levels the playing field for everyone aiming to participate. Opening the investment opportunity to fans also in turn creates an army of brand ambassadors with a vetted interest in the success of the company.
A (bumpy) path to conduct a Reg A+ security token offering
With the SEC’s qualifications of Blockstack and YouNow, it shows regulators are willing to accept blockchain technology and offerings as long as issuers conduct their fundraising efforts within the existing regulatory framework.
YouNow spent an estimated 2 years working with regulators on their offering while Blockstack spent an estimated 10 months and approximately $2 million on their token offering. Now that they’ve paved the first path to successfully qualified Reg A+ DSOs, more issuers are inevitably going to follow their trail. Luckily, as more issuers take this funding rout, bumps will be smoothed, wrong turns will be avoided, and the path for everyone to participate in a transparent, secure, and accessible marketplace will be realized.
Infrastructure in place
The tools to conduct a compliant digital security offering are already here. Companies have built out solutions for each stage of a DSO so that companies going down this path have stepping stones to conduct an offering. What we noticed was that there wasn’t a true one-stop-shop for a digital securities issuer to turn to for an end-to-end solution. This is why Globex developed an integrated tech stack to cover each stage of the offering including issuance, KYC onboarding, AML screening, custody tools for transfer agents, and secondary trading. We believe streamlining the process for issuers will enable greater adoption.
What we need going forward:
The two most important items we believe the industry needs to focus on are secondary liquidity solutions and education. Right now Blockstack states that they are in talks with international exchanges but that U.S. investors wouldn’t be able to participate. Since increased liquidity potential is a major driving factor for DSOs, its critical that liquid secondary marketplaces for digital securities become available in the U.S. and abroad.
Secondly, education is key. In order for mass adoption for Reg A+ DSOs to take place, the many three-lettered acronyms associated with the opportunity need to be repeated over and over again in layman's terms.
We believe the future of capital markets and trading are going to be on the blockchain. We look forward to playing an active role in accelerating adoption by providing a one-stop shop for digital securities offerings. Find out more at https://www.horizon-globex.com/.