Preflogic: The Securities Matrix
A summary of the Preflogic Whitepaper 2.0
“I believe it is our obligation to explore whether we can reduce cost and complexity, and increase opportunity for our Main Street investors in this important market, including through professionally managed funds, where Main Street investors are able to invest in the private market on terms similar to those available to institutional investors” — SEC Chairman Jay Clayton 11/11/2019.
The Preflogic whitepaper version 2.0 has been released just less than 14 days before a 2nd round Reg S offering is opened, as well as a Reg D 506 (c ). It is clear that much of the time spent between the conclusion of the initial Reg S offering and now, has been on technical development and creating partnerships to enhance the ability to on-board clients to the Preflogic platform.
The realization that Digital Securities can entertain a new wave of capital formation into a global pool of investors, along with the potential liquidity that comes with the worldwide market, is starting to come to the forefront. Jay Biancamano, Head of Digital Assets at State Street — one of the world’s largest custody banks holding more than 10% of the words assets said recently, “We’re seeing assets start to become digitized…trickle, trickle, trickle and then we believe there will be a flood.”
The cost of entertaining an IPO in the traditional market still extends well past the figure of $200,000 USD. Services that cause these figures to stretch a capital raise to these limits can be;
- Lawyers, providing documentation, advice — 20 to 40k.
- Investment bankers — playing the role between the issuer and the investor.
- Banks — International transfer fees
- Clearing firms; up to 3 weeks wait for release of securities.
- Transfer agent costs.
Preflogic have developed a robust solution by addressing the question: “how can we gather on one cost-efficient platform the multiple advantages that today’s commerce-enabling technology and relaxed regulatory climate (JOBS ACT 3.0 link) offer small to medium enterprises (SME’s)?”
Remember, the target audience for Preflogic is;
- 34 million SME’s in the US alone.
- 18 million direct marketing individuals in the US alone.
- Trillions of dollars worth of assets to be digitized, or “ripe” for tokenization.
In Q1 2020, Preflogic will release its Securities Matrix which will enable any size business to create a digital security offering from start to finish and allow the issuer to do this at a fraction of the price a typical IPO would cost. Over time this will come with a growing list of issuers and investors who can opt in to the Preflogic ecosystem, and have visibility and access to future issuer raises.
The Securities Matrix will provide an end to end platform full of services for the issuer to use for their digital security offering. These include;
- Issuer Education: how to present business plan, Telegram posting advice, what email to send to whom etc.
- Offering Entity Structure: service from an online distributor of standardized legal forms “iDisclose”, standardized bylaws or operating agreements, form ID to gain access to the SEC’s EDGAR filing website etc;
- Determine Scope of Offering;
- Processing of the Offering;
- Custodial and Financial services;
- Risk Management;
- Guidance in post-closing regulatory obligation;
- Cap Table Management;
- Liquidity Services.
The price an issuer will pay for these services — less than $20,000.
The Securities Matrix will consist of 3 separate products appropriate for issuer’s business plans, sophistication and ambitions for the offering:
- Turnkey Matrix
- Enterprise Matrix
- Liquidity Matrix
The Turnkey Matrix will cost an issuer around the $10,000 mark and will provide the following services;
- Education materials for the industry class;
- Organizational documents appropriate for the industry class;
- SERC token appropriate for the industry class;
- Private Placement Memorandum (PPM) outline relating to the industry class;
- A pre-built website customizable to the offering;
- Video relating to the industry class for the offering;
- Cap Table management services.
The Turnkey Matrix will service 2 markets;
- Residential Real-Estate
- Will provide a minimum annual return 6–8% + 50% net revenue + % return on equity sale AND a percentage of the profits back to the issuer.
2. Fix and Flip
- Issue tokens as per offering, e.g. Turn a $150k raise for fix and flip into $185k within 60–90 days — rinse & repeat. They could offer a percentage of profits to the investors while the issuer keeps a percentage themselves.
The Enterprise Matrix is targeted to SME’s to allow them to expand their businesses. Target investors can include accredited investors. Cost of the Enterprise matrix to be around the $15,000 mark. Services include;
- Introduction to securities offering exemptions available to the user.
- SERC token customization guidance.
- Introduction to opportunities for liquidity.
- Custodial and Cap table management services.
The Liquidity Matrix is designed to attract enterprises that are profitable and have high expectations for growth but are too small to meet the requirements or have the capital to go to IPO. It is also developed to allow SME’s to attract capital or employees by offering equity participation to then allowing them to monetize all or part of their ownership. Costing close to the $20,000 mark, services include;
- Use of the platform to convert existing equity interests or stock certificates into digital securities; and
- Introduction to offshore exchanges that offer trading services of digital services for SME’s.
Privately owned enterprises with shareholders unable to move their equity can benefit from the Liquidity Matrix. One example is Equity Residential as previously mentioned in an earlier article.
Financial and Custodial Services
Each Securities Matrix issuer will also be provided with Financial and Custodial Services. Preflogic have partnered with Prime Trust, a company that will provide Preflogic’s customers with trust and custody services where each issuer will be provided a wallet within Prime Trust to house that security and each investor who purchases the digital security will do so with a wallet held by Prime Trust.
Prime Trust will also accept various forms of payment for digital securities including, credit/debit cards, wire transfers, SWIFT, checks and Bitcoin & Ethereum.
Risk Management — compliance services that Prime Trust will provide to issuers include;
- KYC (Know Your Customer) verification of the identities of an investor;
- AML (Anti Money Laundering) investigation services, including review of FBI and OFAC on investors;
- Source of Funds reviews, and;
- Bad actor checks assisting legitimate issuers to qualify for the SEC’s offering exemptions.
Outside of this, purchasers of the Securities Matrix can purchase an insurance policy from Assurely, underwritten by AXA — the world’s second largest financial services company, to provide the issuer a measure of safety against the cost of potential lawsuits arising from their offerings.
Preflogic will also offer the following services through the purchase of the Securities Matrix;
- Compliance with Post-Closing Regulatory Obligations
The issuer will be provided with a set of tools that will assist them in ensuring they meet legal requirements when the resale of securities become necessary and these tools will help with adhering to compliance for the issuer and the investor. The DS Wizard will facilitate this process via a dApp which can restrict movement of digital securities dependent on whether or not that investor has trading restrictions. Essentially, Preflogic’s tools help empower both the issuer and investor to maintain compliance.
- Cap Table Management
The Securities Matrix provides issuers with a set of tools to enable compliance with these post-closing obligations, as soon as the digital services offering is complete. The smart contract can disallow new token issuance's in line with the offering (Reg S, Reg D or Reg CF). This service will also provide notice statements so the issuer can send out to shareholders/investors. This can be done through either email or postal delivery.
- Liquidity Services
Most people following this space would agree that secondary trading is the final piece of the ecosystem that is needed for expansion and maturity of the space. Announcements of secondary trading platforms are beginning to occur, but most do not expect the capability of trading digital securities until late 2020. There are currently only two issues on the US-based tZERO platform.
As Preflogic is not a broker dealer, what they have outlined is structured around two programs;
- Association with an offshore exchange.
Preflogic has noted in their whitepaper that in Q4 of 2019 — due diligence began to apply for a license to operate a Digital Securities Exchange with a goal of obtaining this within Q1/2 of 2020.
Let’s assume this is granted and they have the ability to on-board issuers to this foreign exchange. Having this license, Preflogic can provide listing services for their clients who have sold digital securities to non-U.S. residents (in a Regulation S offering, most likely) and meet the listing requirements of the exchange.
2. Development of an Investor Database
Preflogic will control the servers holding the client or investor data of the issuers. Investors will be able to access future offerings from issuers via an opt-in service that will be provided. The database will contain the investors’ KYC verification, AML assurances, contact information, and identification as accredited or not and U.S. resident or not. The value of this data will grow over time.
All of this valuable data is the type of treasure that broker dealer’s value.
Summary
Overall, Preflogic is building an end-to-end platform for entrepreneurs and business owners, large and small, to access capital. PrefLogic, through all communications that I have seen, continues to exhibit what feels like a moral obligation to use their core technology to reduce the cost and complexity of Wall Street, thereby empowering Main Street investors with access to private markets typically reserved for institutional investment.
“The securities matrix simplifies the capital formation process to empower SME’s and individuals in cost effective fashion”.
They have also backed their message by allowing retail investors to own equity in their own company. With 5 days remaining until kick off, the opportunity to invest in a digital securities platform is incredible. This platform, over the coming years, has a chance to play a pivotal role in the tokenization of TRILLIONS in both current and newly formed assets. In my opinion, there has never been an opportunity such as this in the blockchain/cryptocurrency/capital formation space — ever.
Disclaimer: I am not a consultant or employee of the company, but instead an investor in the original Reg S raise and someone who is very excited about the company’s future.
