Tokenization in RegA+

As the private capital market continues to undergo a digital transformation, ideas like blockchain, digital securities, and tokenization continue to be discussed by regulators, issuers, and investors. “Tokens” represent actual ownership in a security and is a registered investment vehicle. However, when the term was coined in the mid-2010s, tokens became thought of as unable to support the compliance, regulations, and legal requirements of a security. Instead, digital securities and digital assets became the preferred term to accurately convey the time, effort, and reliability in this form of investment.

 

Digital securities will have a transformative impact on the capital markets. For example, when the public market was built more than 100 years ago, the technological tools of today were unavailable. As the system has aged, it has become antiquated. These new forms of securities will result in a more efficient, equitable, and accessible capital market system for both issuers and investors. However, since the technology is so new, the educational component will be the next hurdle because many still are unaware of what digital securities are. 

 

It is important to consider that digital securities are not about disintermediation, but instead intermediation with the right efficiency and focus, bringing together the right parties like broker-dealers, lawyers, and transfer agents. Unlike other digital assets, digital securities are regulated by securities laws, and having the right processes in place ensures that raises are done compliantly. If a RegA+ raise is structured improperly, it could mean the company has to refund investors of their investment. 

 

Because many investors don’t want to hear the term tokenization or digital asset, the educational component will be essential for the widespread adoption of digital securities. However, as digital securities make investment processes frictionless, we will continue to see how digital securities for RegA+ continue to evolve.

What Impact Will Blockchain Have on Private Markets?

Blockchain has become a familiar buzzword, especially as things such as cryptocurrency grow in popularity. Currently, 46 million Americans now own Bitcoin. However, blockchain has many more industry-changing applications. Nearly any asset, both tangible and intangible, can be tracked and traded through blockchain. 

 

Blockchain, also known as distributed ledger technology, is a database where transactions are continually appended and verified across by multiple participants, ensuring that each transaction has a “witness” to validate its legitimacy. Blockchain transactions are immutable, meaning that they cannot be changed, making it difficult for hackers to manipulate. Copies of the ledger are decentralized, not stored in one location, so any change to one copy would immediately make it invalid, as the other copies would recognize that it had been altered. 

 

In private markets, blockchain technology has the potential to become a powerful tool, replacing manual inefficiencies with secure, digital processes. Everything from issues certificates to shareholders and preparing for audits becomes easier with transparent, readily available records. While public blockchains, like those that host Bitcoin transactions, enable anyone to participate, companies can also establish private and permissioned blockchains. In these forms of blockchain, the ledger is still decentralized, only access is controlled and only authorized individuals are allowed to participate. 

 

Rather than traditional securities, private companies can use distributed ledger technology to offer shareholders digital securities instead. These securities are still SEC-registered or fall under exemptions like Regulation A and Regulation CF. Digital securities protect investors, enabling them to always be able to prove their ownership, and companies are protected from the possibility of losing records of their shareholders. Private companies also benefit from blockchain as records are already transparent and readily available. Rather than hiring an advisor to review company documents, private companies employing blockchain technology will have records ready to go when conducting any capital market activity. Blockchain also dramatically reduced the amount of manual paperwork, since digital securities can be governed by smart contracts that preprogram protocols for their exchange. In addition, blockchain makes it easier for private companies to share information and data, while shareholders can feel confident that records are immutable and unable to be tampered with. 

 

Many companies are still in the early stages of adopting blockchain or are just beginning to consider its possibilities. Blockchain will only continue to be adopted by private companies both in the United States and around the world, improving the processes associated with private market transactions. The private market will benefit from increased transparency and efficiency, making transactions smoother for both companies and their shareholders.

Meet the KorePartners: Adrian Alvarez, InvestReady

This post is part of a series of short interviews about the companies and faces that are part of the KorePartners Ecosystem*.

We believe that behind every great company there are people, and behind every person, there is a story to tell.

KorePartner: Adrian Alvarez, Co-Founder & CEO at InvestReady

Born in: Miami, USA
Based in: Los Angeles, USA.

What was your first job?

I was a clerk for a mortgage service company. Very exciting =)

How and when did you get involved in the startup industry?

In college, I was the first employee of a tutoring company for standardized tests. That led me to go off on my own with my own tutoring service a few years later. During grad school where I did a JD/MBA, I became involved with the University’s startup incubator and after graduating, I worked there for 4 years as the assistant director and program manager. We helped advise thousands of startups and helped a lot of students with their projects. I also met my co-founders for InvestReady in that job as well.

How do you see the startup scene today?

I’m seeing a lot of work behind the scenes preparing for 2019 in the crypto and private investment scene. I believe 2019 is going to be huge for security tokens and we’re preparing ourselves for it. It’s an exciting time.

 

What does your company bring to the KorePartners Ecosystem?

InvestReady provides accredited investor verification services under the US and international law. Our API allows issuers, brokers, exchanges, portals, service providers and more verify that their users are eligible to participate in the investment in a secure and scalable manner.


What is it about the partnership with KoreConX that most aligns with your company strategy

I believe our shared focus on providing exceptional service at scale is a huge factor. We’re also both constantly re-tooling and thinking about how we can improve our service which also helps.


*The KorePartners Ecosystem is a group of organizations that follows our governance standards and share with us the same goal: to provide entrepreneurs with the tools they need to grow their business.