SPiCE VC AMA on RAMP Your Crypto Telegram — Tuesday 27/11/18

SPiCE VC — Disrupting Venture Capital with the Blockchain

Kenzi, [27.11.18 21:01]
Hello everybody & welcome to SPiCE VC AMA. Today we have Tal Elyashiv with us, one of the co-founders of
SPiCE VC. We’ll get things underway with one or two standard questions, but if any of our members want to ask anything, please do jump in at any point you like…

Kenzi, [27.11.18 21:02]
Hi Tal, can you please start by telling our members — what is SPiCE VC?

Tal Elyashiv, [27.11.18 21:02]
SPiCE is a Venture Capital fund that has two distinguishing factors: (1) it is focused on investing in companies building the ecosystem of the tokenization industry, hence providing investors exposure to the massively growing tokenization industry (2) it is fully tokenized, so investment in the fund is liquid (unlike traditional investments in VC funds).

Kenzi, [27.11.18 21:04]
Interesting, so SPiCE invests in companies building the Ecosystem of the tokenization industry. What is this industry and why is SPiCE investing in it?

Bitcoin David, [27.11.18 21:06]
What previous Ramp Your Crypto projects is Spice invested in?

Tal Elyashiv, [27.11.18 21:07]
The industry is relatively new and started evolving late in 2017 early 2018. It is about using Security Tokens in order to turn the ownership of assets (mostly non liquid assets) to liquid.

There are many examples, but some of the most obvious ones are real estate (an industry with a market cap of hundreds of trillions of dollars worldwide), private equity (VC included), etc.

Overall the potential size of this industry is in the hundreds of trillions of dollars, and over 2918 we have already seen many assets being tokenized or beginning the process of doing so.

It is an industry that is growing from 0 to trillions of dollars in very few years and requires significant ecosystem to support this growth.

The ecosystem providers are like the “picks and shovels” providers of this industry and they stand to profit the most from the immense growth we see in this industry.

These ecosystem builders/provider are the companies we invest in.

and because of the rate of growth of this industry, we believe that there is a potential for much “higher density” of unicorns.

Also, because of our pioneering position in the industry we are well position to recognize top players among the many companies popping up

Tal Elyashiv, [27.11.18 21:08]
[In reply to Bitcoin David]
None that I am aware of.

Bitcoin David, [27.11.18 21:10]
[In reply to Tal Elyashiv]
Is Spice evaluating them?

Tal Elyashiv, [27.11.18 21:12]
[In reply to Bitcoin David]
We will be. However, we have a clear investment strategy and only invest in companies that fit that strategy. Many previous ramp your crypto projects, althogh they may egreat projects are not necessarily a fit to that strategy. It does not make them bad nvestments, but they may not be right for us.

Kenzi, [27.11.18 21:14]
You mentioned Security Tokens, for anyone new in the space, can you explain what they are and how they differ to utility tokens?

Tal Elyashiv, [27.11.18 21:18]
A security token is a token representing a form of security (like equity, rights to future revenue stream, dividends, interes, etc) and identifies itself upfront as a security. As such it is required to be fully compliant with all securities regulations in every jurisdiction where this token is marketed, traded or held by token holders.

It means that the whole process of marketing it, who is allowed to hold it, and how trading is done is completely different (and under regulators’ supervision) than utility tokens.
One of the obvious differences is that it requires KYC (Know your Customer) and AML (Anti Money Laundering) checks, and depending on the potential investor’s jurisdiction, it may require also accreditation/qualification for investors.

It also requires issuers to publish a prospectus like any security issued, and makes issuers exposed to regulators supervision in any relevant jurisdiction.

Kenzi, [27.11.18 21:22]
Ok, that makes sense, more regulation understandable considering a security.

Ok, so you have already done your security token offering (STO) in March, right? Was it a success, considering we were in the beginning of the bear market?

Tal Elyashiv, [27.11.18 21:27]
We raised what we wanted to raise for the first closing of the fund. We have $15m under management currently.

It gave us enough to start investing and leverage on the momentum building in the industry. Over the last six onths we have seen about 100 companies popping up, in the category of the tokenization industry ecosystem. The first closing allowed us to make what we believe are great investment in some top players.

From a value perspective it panned out pretty nicely for investors. While the crypto market was tanking (over 80% down) the Net Asset Value of SPiCE per token went up, depending on when (pre sale, main sale) and what amount people invested, between 40% to 80%…

Kenzi, [27.11.18 21:28]
Wow that’s great!

Kenzi, [27.11.18 21:28]
So what companies have you invested in so far?

Tal Elyashiv, [27.11.18 21:34]
So far we have 7 portfolio companies. All top players in our mind, in the industry we are targeting and within our investment strategy.

The full list (and the rational explaining the our interest in them) can be viewed on our site and in the presentation, but if I had to summarize: we have invested as stated in companied building the ecosystem of the tokenization industry.

A couple of token issuance platforms: 
- Securitize: the leading security tokens issuance platform
- Slice: A real estate tokenization platform

A couple of marketplaces for security tokens:
- INX: a fully regulated (SEC, Finra) marketplace for digital assets and security tokens for institutional investors
 — ROX: a fully regulated marketplace for real estate tokens

A stable coin provider (Saga), and two companies tokenizing services (Otoy and GraphPath).

Tal Elyashiv, [27.11.18 21:36]
We keep reviewing companies and projects daily and have a fairly robust pipeline of potential additional investments

Kenzi, [27.11.18 21:39]
Yes those are all project names we recognise, and we can see how they fall into your investment strategy. 
So now the 2nd raise, what are these funds for?

Tal Elyashiv, [27.11.18 21:44]
First, the money we raise is used to invest in portfolio companies. So the second raise is basically completing the first closing to the target fund size.

The STO that ended in March constituted our first closing of the fund. We made it “short and sweet” so we can start building on the momentum we saw building in the industry. Some of it already bore fruit (Securitize just announced yesterday a great series A close of $12.75m with strategic investors like Coinbase and Blockchain Capital). A few others, you will hear the announcements coming in the next few weeks.

We are now returning to raise the rest of the fund (as originally specified in our prospectus), to allow us to build much larger and more diverse investment portolio.

Kenzi, [27.11.18 21:48]
Seems that Securitize and others are working out as planned, that’s great to know for potential investors. So just to clarify to our members, is this a 2nd STO or increase to the original fund?

Tal Elyashiv, [27.11.18 21:50]
It is not a 2nd STO.

It is an increase to the original fund. The tokens are identical and provide investors economic rights to the full investment portfolio of the fund. Past and future.

Kenzi, [27.11.18 21:51]
So does that mean any potential investors wouldn’t have an issuance date to wait for?

Tal Elyashiv, [27.11.18 21:53]
That is correct. The is no issuance event to wait for. Tokens are issued per investment. As soon as an investor transfers the funds, we issue the tokens to the investor.

This is also the way it was specified in the original SPiCE prospectus for the “Post STO” raise.

Kenzi, [27.11.18 21:56]
Super. You mentioned economic rights there, {eyes light up!} what does the SPiCE token give it’s owners?

Tal Elyashiv, [27.11.18 22:02]
The SPICE token gives its owner economic rights to the performance of the investments portfolio of SPICE. Very much like an investor of a traditional venture capital fund.

That means that whenever there is a liquidity event (an exit) of a portfolio company, all net proceeds get distributed to all token holders pro-rata.

So, for example, if you own 10% of the tokens, you are entitled to 10% of the exit proceeds.

The big difference is that unlike traditional VC funds the investment is not locked in for 10–12 years and is liquid, as the tokens are tradable.

So investors can choose how long to hang on to tokens, when to liquidate, and how much to liquidate.

BTW, SPiCE publishes a quarterly Net Asset Value (NAV) per token report, together with EY (our auditors). This report assess the value of the portfolio, and discusses relevant information like relevant trends and information related to the industry and portfolo ompanies.

Also, to interested investors we offer exposure to our dealflow, and co-investment opportunities in our dealflow.

Kenzi, [27.11.18 22:06]
Liquidity with STO’s is a major advantage over traditional VC for sure… And what about vesting or lockup periods for new investments?

Tal Elyashiv, [27.11.18 22:07]
No vesting. Lockup only aplies to US investors (regulatory 12 months lockup). All other investors a free to trade as soon as they invested…

Kenzi, [27.11.18 22:08]
OK that clarifies the token issuance, What can you say about the SPiCE token performance so far?

Tal Elyashiv, [27.11.18 22:13]
As I mentioned before, so far Net Asset Value per token appreciated in the thest 6 months between 40% and 80% depending on when investors purchase it.

That is in a period when crypto declined around 80%.

Of course, it is important to say that that should not imply similar performance every six month period.

But it does demonstrate, I believe, that:
(1) this is a totally different asset class than crypto
(2) looks like we made decent choices (and have access to good deals) so far
(3) this is truly a massively growing industry and the market seems to recognize it.

Kenzi, [27.11.18 22:17]
So as we now know SPiCE is a recognised pioneer within the tokenization industry, and proving to be succesful in both strategy and portfolio selection, which as we know is no easy task in todays market… 
For our last question can you tell us a little about the SPiCE team and minds behind this ambitious winning project?

Russell Thompson, [27.11.18 22:18]
I’d like to know what tradeable means?

Tal Elyashiv, [27.11.18 22:20]
We are three partners. Myself, Carlos Domingo, and Ami Ben David.
We are located in Tel Aviv, San Francisco and London.

In short we all have a history as Senior corporate executives (in the US and Europe), Serial Entrepreneurs, and early stage investors, with hundreds of millions of dollars in funds raised, many exits under our belts both as founders and as investors.

More detailed BIOs and linkedin links are on our site and in the presentation.

Tal Elyashiv, [27.11.18 22:24]
[In reply to Russell Thompson]
Very good question.

The tokens are tradable both peer to peer and through regulated security token exchanges. As long as the trade is regulatory comliant. The first market place (OpenFinance — OFN) is planned to go live this week and SPICE is the first token to be traded there. More market places like tZero are going live within the next few months and SPICE will be traded there as well.

There are also OTC (Over The Counter) bulletin boards (like AirSwap) enabling such trade that will support SPICE trading fairly soon.

Russell Thompson, [27.11.18 22:25]
And how do you deal with exits and the impact on the token price or the NAV?

Russell Thompson, [27.11.18 22:26]
Amd as an investor what access to get to your previous investments and at what NAV?

Russell Thompson, [27.11.18 22:27]
And obviously as a security token you have huge insider trading issues here?

Tal Elyashiv, [27.11.18 22:29]
[In reply to Russell Thompson]
As to exits and distributions, There ia a detailed explanation in the prospectus, however in short:

when there is an exit we perform a mandatory buyout of a portion of everyone’s tokens at a higher price than market price.

Then we burn those tokens.

So at the end of this exercize, all token holders received their share of the exit proceeds, and they still hold the same % of the overall tokens as before (although the actual number changed).

The distribution is done using ETH to their wallet.

Tal Elyashiv, [27.11.18 22:31]
As an invesor you get access to all previous investments in the portfolio. The token price for investors is derived from the last published NAV per token (for example the last one published last week was $1.37)

Tal Elyashiv, [27.11.18 22:32]
About insider trading, you are right, and there are several rules related to security trading governing this, which impact the ability of SPICE personnel and executives of portfolio companies in terms of trading (disclosure, how, when is it done, etc)

Russell Thompson, [27.11.18 22:35]
Yes understand the NAV makes sense. Who calculates the NAV? And back to the tradeability. With a token trading on an exchange i still dont understand how you deal with an exit or something else impactful? You suspend trade? Announce and let the market price adjust? This is always they issue with tokenizing VC right? And how will you deal with discounts or premium to NAV? let the token price trade freely?

Kenzi, [27.11.18 22:36]
[In reply to Tal Elyashiv]
A very reputable team indeed, with a wealth of knowledge and history, backed up with many years experience across the globe.

Tal Elyashiv, [27.11.18 22:36]
Lots of good questions here…

Russell Thompson, [27.11.18 22:37]
happy for you to email me if thats easier if you need to get going :-)

Tal Elyashiv, [27.11.18 22:37]
The buyback is mandatory and does no happen in the open market.

Russell Thompson, [27.11.18 22:38]
So just so im clear

Tal Elyashiv, [27.11.18 22:38]
Market price (dsicount/premium) is not something we interfere with. We just make sure that buyback is done above marketprice.

Russell Thompson, [27.11.18 22:40]
you have 10 investments of 1m each. One exits for 5. You buy back the value of the exiting investment (5m) directly from the owners so supply decreases, and the tokens only now reflect the non exited companies?

Tal Elyashiv, [27.11.18 22:40]
[In reply to Russell Thompson]

Russell Thompson, [27.11.18 22:41]
ok interesting. i think the token price on the market will be interesting first time that happens. :-)

Russell Thompson, [27.11.18 22:41]
thank you

Tal Elyashiv, [27.11.18 22:41]
[In reply to Russell Thompson]
lots of ‘firsts’ here… 🙂

Kenzi, [27.11.18 22:42]
Well some great questions tonight, getting into the technical details… but it was hard enough to get Tal for 1.5hrs and we’re way over that now, so please direct any further q’s or enquiries to me here on tg…

Kenzi, [27.11.18 22:42]
OK Tal, thanks for joining us at RAMP Your Crypto, we love the project and are happy to take any enquiries our members may have during the raise period, and point them in your direction for deeper review when required.

Kenzi, [27.11.18 22:42]
The full transcript of this AMA will be posted on our medium channel tomorrow. 
The SPiCE presentation is available here: http://bit.ly/2JKtUF2

Thank you all and goodbye for now