Blockchain, Crypto, Regulated Tokens – Issuance Plans To Be The Investor Hub For All

Blockchain, Innovation, Investing, Regulation | September 24, 2018 By:

A new marketplace that matches digital security issuers with investors interested in blockchain, cryptocurrency and regulated token offerings. That’s the goal of Issuance, Inc. which hopes to connect investors at all levels with issuers.

Issuance plans to set itself apart by providing unique incentives — including compensation and early access to high quality deals — for investors.  Its partnership with OpenFinance Network, the first US-based regulated digital currency trading platform, ensures liquidity to investors. Also, in succession of the offering, Issuance plans to acquire digital marketing company CrowdfundX, which comes with a database of 500k investors and established relationships with 200+ funds.

“We know that digital securities are the next mega-trend in capital markets, and our experience in regulated markets tells us that deal marketing will be the single biggest challenge for any DSO issuer,” said Darren Marble, CEO of Issuance. “Our vision is for Issuance to be the leading platform connecting DSO issuers with investors.”

The Issuance platform, which consists of an iOS and Android app for investors and desktop web app for issuers to manage their campaigns, will support deal marketing for issuers using Regulation D, Regulation A+, Regulation CF, and Regulation S securities exemptions.  

Issuance is raising capital under Regulation D 506(c), and is selling preferred equity to verified accredited investors. Issuance will tokenize its capital stack after completing its raise, and list Issuance digital securities on the OpenFinance Network ATS.

CEO Darren Marble talked with Block Tribune about the Issuance plans.

BLOCK TRIBUNE: Ideally, at what stage should a content creator get involved with Issuance?

DARREN MARBLE: Great question. So our vision is to match digital securities issuers and investors better than any platform ever developed. What we’ve learned in this industry in the last nine months, it’s a nascent industry, is issuers are tending to hit the tokenization platforms and liquidity providers immediately. And yet what they’re really seeking is something that neither a tokenization platform or a liquidity provider provides, which is capital raising in deal marketing services.

Now, ultimately, for any company to be able to go out and raise capital, there are a few things they need first. They need a securities attorney that they’ve retained. They need to determine the structure of the offer that they’re going to take to the market. They need supporting legal documentation. So maybe a Reg. D offering would have a term sheet, a private placement memorandum, an investment deck with proper disclosures. And then they need a few pieces of marketing collateral that could be a deck, a white paper, a one-pager, etc.

So, usually, they need a securities attorney, legal docs, marketing collateral. And generally, at that point, the issuers then prepare to go out and raise capital. Those are the base requirements.

BLOCK TRIBUNE: Okay, so there are a number of companies out there that claim that they will tokenize you. How will you work with them? Or will you work with them?

DARREN MARBLE: Well, we have executed a partnership agreement with Securitize. And that partnership agreement is part of our investment package that we’re now sending to prospective investors in Issuance. We’re going to announce it widely today. Securitize has developed a protocol to help companies create and issue security tokens, which are interchangeable with digital securities.

And the partnership agreement stipulates that Securitize will send deal flow to Issuance, and Issuance will send deal flow to Securitize. Ultimately, we see ourselves sitting between platforms like Securitize and exchanges like Open Finance Network, where we’ve executed our own listing agreement to trade our own digital securities.

So the flow might be an issuer comes to Securitize wanting to create security tokens that they can sell, goes through the Securitize protocol, is then referred over to Issuance, which will help them connect with authenticated interested investors. We drive those investors from our platform to the Securitize platform, where the investors complete the subscription agreement, and then ultimately in succession they flow over to Open Finance, where those digital securities are traded and listed. So, that’s one probable flow, which is issuers flow through to tokenization, through to deal marketing, which is Issuance, and then through to the exchange, such as Open Finance or tZERO

BLOCK TRIBUNE: Okay. So, how will you recruit and qualify your investor? What sort of criteria are you using? Are these only accredited investors? Will it be available in the US too?

DARREN MARBLE: Our platform will include every investor imaginable, from institutional investors to hedge funds, to crypto hedge funds, family offices, accredited and non-accredited. One of the biggest issues in the industry today is that the current funding portals tend to be overly focused on non-accredited retail investors, which is extremely limiting for issuers that are seeking to raise capital. It forces them into a transactional play where they’re attempting to raise capital from hundreds or thousands of small mom and pop investors.

Where we’ve seen a lot of action in the digital security space in the past year or so has really been with crypto hedge funds. To turbocharge the Issuance launch, we are acquiring CrowdfundX, which is a financial marketing firm where I am the CEO. CrowdfundX is a multi-million dollar revenue generating financial marketing firm, profitable business, has no debt. And some of the key assets that will be acquired or brought over to Issuance through that acquisition are a 500,000-person retail investor database, which is maybe the largest in the industry, that CrowdfundX has aggregated through the years, as well as relationships with 220 crypto hedge funds that have five million to a billion dollars under management.

So immediately, we’ll have a substantial retail database, a substantial crypto hedge fund database at Issuance. And in terms of how we acquire investors outside of that, what we’re going to do is offer unique incentives to different investors to have them sign up on the Issuance platforms.

So, for institutional and hedge fund investors, we’re going to offer them first-look access to highly ranked deals, and to the accredited and non-accredited investors, we’re actually going to offer payment in stable coin as an incentive for them to sign up. And signing up on Issuance is a multi-step process. It involves going through KYC/AML, so Know Your Customer/Anti-Money Laundering check. And more importantly, it involves the completion of a few surveys.

But what we really want to do is to create a unique profile of every investor on the platform. And this is, again, one of the big misses in the past few years with current funding platforms. We want to understand who our investors are. We want to know that they’re real. We want to know what deals they’re interested in and what deals they’re not interested in.

So that way, if you’re a guy that only invests in real estate and within real estate, you only invest in multi-family deals that are looking at some desired return, you will only get sent deals that match that profile. You will not be pitched a biotech deal, you will not be pitched a cryptocurrency deal. And that’s one of the biggest challenges in the space today -current platforms pitch every deal to every investor.

So our objective is to create a true 360 degree profile of investors, authenticating their identity, and understanding their deal profiles and preferences, and turbo-charging the launch of Issuance by acquiring CrowdfundX, which already has a half-million-person retail investor data set, and 220 crypto hedge funds that we work very closely with.

DIGITAL SECURITIES TRENDING

BLOCK TRIBUNE: What’s your sense of what the appetite is in the market for deals? There’s a perception out there that there’s an ICO winter right now. What do you say?

DARREN MARBLE: I think that’s true. My perception is that the ICO era is winding down and the digital securities era is heating up. Based on our position in the industry, the relationships we have, I’m seeing a very quick and aggressive pivot on the part of hedge funds, as well as service providers that were previously investing in ICOs or servicing ICO’s. They are now extending their businesses to service digital securities offerings, or DSO’s. And my prediction is that digital securities are not just the next mega trend in cryptocurrency, but they are the next mega trends in capital markets, period.

So we’re building infrastructure for a future of digital securities. And while I don’t see ICO’s disappearing, I do think in the very near future digital securities offerings are going to eclipse ICOs, and we are going to move towards a regulated future.

BLOCK TRIBUNE: So in other words, a digital security is something whereby you surrender equity to a partner. Is that correct?

DARREN MARBLE: Not necessarily. That’s a great question, so let me answer.

A digital security is a digital asset that is compliant with federal securities laws and run on the blockchain. Now, the beauty of a digital security offering, which is essentially a compliant offering, is that any company can run one. That means you could be a startup, you could be an enterprise. You could be a blockchain or cryptocurrency company, or a non-blockchain, non-crypto company.

Literally any company can tokenize their cap table and have those tokens listed on an exchange like a tZERO or an Open Finance network, thereby providing liquidity. So to start, the driver towards digital securities is both compliance and this idea of liquidity.

And, in terms of the equity, the other bright spot here is that the issuer has complete control over what they’re selling. So there are many companies right now that are running digital securities offerings that are not diluting themselves. They’re in fact selling a rev share token, a profit share token, meaning the token entitled the investor to a right to a percent of profit distributed on a quarterly basis.

Now, in our own digital security offering for Issuance, we’re selling preferred equity in a priced round. My own opinion is that most companies in this space should be selling preferred equity in a priced round, instead of the alternative, which might be a rev share, a dividend, a profit share, or royalty.

My criticism of those deals on the side is that I think it’s a very tough sell for a startup to offer a revenue sharing token on a non-revenue generating business, right?

BLOCK TRIBUNE: Sure.

DARREN MARBLE: Well, if you told me, you’ve got 100 million dollars on your business that you’ve been operating successfully for five years, with 10% year-over-year growth, and then you go to the market and say, “I’m selling a rev share token,” that makes sense, because you’ve got revenue to share. But for an early stage startup that was founded two months ago, I think that’s a terrible investment. And so for our own deal, we’ve wanted to make the terms as compelling as possible. Therefore, we’re selling preferred equity that will convert into digital securities, and those digital securities have an underlying tie to the shares in the business to the equity in the business.

So that’s kind of the long-winded answer. Just because you’re running a security token offering or digital securities offering doesn’t mean you have to give up equity. But my opinion is that smart issuers will be willing to do that to fund their deals. Does that make sense?

REGULATORS ON THE MOVE

BLOCK TRIBUNE: Sure. The Securities and Exchange Commission has struggled to understand the cryptocurrency and ICO world. Now with this quick pivot that you envision, they’re going to have to master the intricacies of digital securities. How would you see them managing that? Would it take two years from now where they finally get around to start investigating? The wheels of government sometimes move very slowly.

DARREN MARBLE: Yeah, I agree with that point. But I would disagree with the assessment that the SEC or regulators in the US don’t have an opinion or stand or horse in the race. Because I think they have an opinion, they have a stand, they’ve made it very clear.

If you look at the parent company of the New York Stock Exchange, what they announced maybe 45, 60 days ago that they have been developing in partnership with Microsoft, is a digital assets trading platform called Backed. I think it’s clear that they’ve been doing so in dialogue, maybe in partnership, with the SEC, because that’s going to be a huge play for ICE and Microsoft.

And my sense is that the national securities exchanges are all developing their own regulated crypto exchanges, and this is really where the markets are headed. So I think the SEC has been crystal clear. They’ve said that these ICOs have been selling unregistered securities. People can get in trouble and are getting in trouble if they’ve been selling unregistered securities in the US. And the workaround or the solution is quite simple. It’s for these issuers to register their deal or use an applicable securities exemption.

In our platform Issuance, we’ll host deals that are using applicable securities exemptions that include Reg. D, 506 B and 506 C, Reg. Plus, Reg. S, as well as Reg. CF, regulation crowdfunding. So those are the guided pathways for capital raising here in the United States. They’ve been working quite well for the last few years, and the common denominator is that they all permit general solicitation.

The question becomes, how does an issuer, if they’re going to run a compliant offering using one of those exemptions, how do they market their deal to the right investors? That’s the single biggest pain point in the industry, and that’s the problem that we’re solving at Issuance.

BLOCK TRIBUNE: How does your company make money?

DARREN MARBLE: We make money in three ways. The first way we make money is we charge issuers a fee every time they send their deal to an authenticated, interested investor on the Issuance platform. So for instance, you’ve done your legal docs, you’ve got your marketing docs, you’re ready to go to market, you pay us a fee to send your deal to an institutional investor, and you pay a lower fee to send your deal to a retail investor. So the fee ranges depending on the level of accreditation, the size of the investor, that fee is paid up front to Issuance.

The second way we make money is by charging advisory services for strategic deals. So maybe one to 5% of the issuers that come to Issuance will want a white glove marketing support function, which today, CrowdfundX provides. We assign people to the issuers campaign and we market their deal for three or six months. They’ll be able to pay a fee for service, so that’s the second revenue stream.

And the third is also very important, which is aftermarket support. So for successful issuers that lift their digital securities to exchanges like Open Finance or tZERO, we will provide aftermarket support services to elevate their brand profile in the market, continue to keep their tokens, their digital securities top of mind for prospective investors, and the goals of that aftermarket support are the same as an IR firm would provide to a public company. Increased visibility, increase liquidity, increased market cap, and that’s the recurring monthly support function that’s provided on an ongoing basis to successful issuers.

BLOCK TRIBUNE: Okay, so you’re out there now selling preferred equity. What’s your timeline on rolling out and having your platform available?

DARREN MARBLE: We’re projecting that we will have our platform live in the next four months. And the platform consists of an iOS and Android app for investors, and a desktop mobile app for issuers to run campaigns.