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Blockchain-based Securities Tokens Could Shake Up VC and Private Equity

“Blockchain and cryptocurrencies are probably most disruptive technology to shake up VC and private equity industry that I’ve ever seen and I’ve been doing this for 25 years,” says Gary Rubinoff, a Managing Partner of Summerhill Venture Partners and also of Alchemist Capital. “Taking an asset class that has somewhere between of eight and twelve years of illiquidity and providing instant liquidity to investors on day one is probably the most disruptive thing we have ever seen in this business.”

That investors have no liquidity when investing in securities is one of the reasons why it’s so difficult to raise capital in private equity. Pension funds, family offices, and individuals don’t want to tie their money up for so long.

“When holding tokens, they enjoy instant liquidity and can get out when they want to get out,” notes Rubinoff. “That is something they’ve never seen before.”

Companies like Polymath, for which Mr. Rubinoff currently serves as an advisor, seek to make this process easier – and more compliant – than ever.

“The company’s blockchain-based platform is designed to make it very easy and inexpensive when compared to going out and raising $20 or $30 million dollars in a traditional manner, which is a very long and arduous process,” says Mr. Rubinoff. “It’s also dilutive, whereas if you’re raising money in an ICO, an investor’s tokens cannot be diluted.”

If companies continue to go the path of the ICO as opposed to going to a venture group, venture capital groups are going to have to join this new realm of token fundraising, says the 19-year venture capital veteran. Mr. Rubinoff agrees with SEC Chairman Jay Clayton, who said in a hearing that he believes every ICO is a security.

“When I look at how a security is defined, many companies launching ICOs need to abide by the SEC regulations,” says Mr. Rubinoff. “Many who have gone out and said [their token is] a utility [but they] are not really utilities, because they are raising money to maximize the value of the coins and, therefore, are a security. So, I am a big believer that just as 2017 was the year of utility token, 2018 is going be the year of the security token.”

He adds: “This would create a gigantic shift from ninety percent of launched tokens being self-described as utility-based to 90 percent being equity-based. The securities tokens market could very well be worth trillions of dollars in the next decade.”

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