Capital Formation 2.0

Visary Capital
Sep 6, 2018 · 4 min read

The SEC recently announced it is working towards giving “main street” investors more access to private deals and startups. As of today, startups have raised $90MM via Reg CF (Regulation Crowdfunding) and there are other options such as Reg A+, each with their own nuances. These regulations however are still prohibitive with barriers to entry from geographic, raise cap, and compliance perspectives. It looks like these are some of the areas of improvement the SEC is aiming to tackle. We believe this is a step in the right direction for a better system that is based on education and knowledge than status and pure net worth.

Some investment funds might be concerned about losing “exclusive deal access” and claim smaller investors are “incapable” of investment decisions. What we would say to them is, you need to evolve.

As investors in the Information Age, network effects, social capital, and community building are becoming the most important factors to scale (especially in the world of crypto, but we’ll get to that). We would rather have a strong, wide, and diverse investor base that believes in the idea at hand, than a few centralized VCs fighting for allocation. That model is changing, along with the traditional seed round seemingly dwindling.

With this wider approach, you get the best of both worlds. You can still have strategic VCs and angels leading rounds while opening it up to a large group. Hundreds or thousands of other individual investors will also be participating at the same valuation, many of whom will help raise awareness for the startup and very likely be users — a major value add and community created from the capital raise itself. More and more founders are seeing the value of this grassroots approach — it is time for VCs to see the value as well. Platforms like Republic, SeedInvest, StartEngine, Wefunder, and more have been facilitating these types of investments for a few years (since the JOBS Act in 2012). We expect more of these types of services to thrive as better regulation and infrastructure are implemented.

When it comes to accreditation laws, these need to be fixed for the Information Age as well. There are individuals who are developers, engineers, traders, autodidacts, and generalists who are far more qualified from a research, intelligence, and domain expertise perspective than many accredited investors, who are currently gauged only by net worth or income, not by any other merits. The original reasoning behind these laws was to “protect smaller investors”, but it mostly serves as a restriction where only the rich have deal access — another example of regulation negatively impacting the people it’s supposedly trying to help. Things have changed since the internet’s inception with access to information and data. These laws are dated. In this day in age, it is time to give more people the freedom and choice to invest their capital.


You cannot talk about next generation crowdfunding without talking about cryptocurrency and blockchain. This is actually where most of the push for inclusive investments and calls for accreditation change is coming from. The pendulum is swinging towards decentralized, global, dynamic capital formation. In the next 5 years, we will see thousands of tokenized assets and securities open to all kinds of investors around the world. From tokenized equity (“digital shares”) in private startups to larger private companies, to fractional real estate ownership on the blockchain, along with access to other illiquid assets. The ICO market, which has surpassed traditional VC seed and angel rounds since Q3 2017, is a glimpse into an extreme version of open, global crowdfunding. But now a pragmatic framework needs to be wrapped around ICOs to ensure some level of investor protection and compliance (although we generally believe less is more and markets have the ability to evolve and self-regulate over time). We’ve seen countries like Switzerland put some intelligent regulation guidelines around ICOs and expect the U.S. to do something relatively similar in the next 6–12 months.

Visary Capital has already participated in a few tokenized equity deals with more in the pipeline for 2018. We plan to write about these trends in a lot more depth in the coming months and quarters. The investment structure in these deals has been a breath of fresh air, often with better incentives, security, liquidity, and transparency for both investors and the user community (for example, one startup we’ve invested in will have a positive yield stablecoin which will serve as an incentivization dividend and revenue share mechanism for their most active and loyal app users).

Over the last 6–12 months, all of the startups we’ve worked with in the blockchain space have been scratching their heads trying to figure out ways to get creative and open token investments up to the broader public, whether through airdrops, vouchers, or bounties/community rewards. In the U.S. (especially New York State), it is very hard to do as it stands and most teams have been forced into only allowing Regulation D accredited investors as to not risk any backlash. A few startups have managed to implement very strong utility token use-cases off the bat with working products and strong legal backing such as Minds.com, a social network with over 1 million users, where the ERC-20 token powers the whole ad network and post-boosting system. However, a regulation framework is still strongly desired from all the teams we’ve talked to and the current grey area has hindered innovation in many cases.

We hope to see more types of investors included through better regulation by the end of 2018. Dated bureaucracy and prohibitive red tape does not empower individuals or the middle class in this era, nor does it help startups or ideation. Education, common sense legal frameworks, choice, and access is empowering. Over the next 5–10 years, the investment landscape will change dramatically as crowdfunding laws, broad capital formation, and new P2P technology infrastructure converge.

Written by

Forward-thinking, pragmatic, first principles technology investment fund.

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