A New Way to Fundraise? — Token Equity Convertible(TEC)

S. Nishimura
Sep 8, 2018 · 2 min read

The trend where a company issues its own digital token and fundraises has been catching on recently; some of them have gone public and others have stayed private as pre-sales, and maybe some have just disappeared..

In Japan, without a license this way to fundraise is not allowed and the license is almost impossible to obtain now because the examination process is brutal and literally more than a hundred companies on the waiting list.

Token Equity Convertible(TEC)

Meanwhile, in August 2018 SynchroLife, Limited which is a Hong Kong subsidiary of Japanese restaurant SNS GINKAN, inc. fundraised by offering its convertible equities with the option to exchange the equities for their tokens, SynchroCoin, in the future. The Hong Kong subsidiary has conducted ICO in September last year and raised 55 ETH (about $12K USD)

They have raised 80mn JPY (about $720K USD) from CERES INC. engaged in the point media business and others. They claim that this scheme offers alternative exit for investors to conventional exits as M&A and IPO.

The token, SynchroCoin, will be used as an incentive for users to contribute to the platform; they will receive the token as a reward when they leave a review of restaurants, translate reviews or visit a partnering restaurant. The token will be used to pay for meal in partnering restaurants, exchange coupons and so on.

Cashing out?

It seems like that the token is not expected to go public in a crypto exchange for cashing out. Therefore, if those investors exercise the convertible option and get the tokens, they will be only able to use them for the partnering restaurants or they might be able to use for advertisement of their own restaurant on the platform.

According to current regulations in Japan, we need the license to sell “crypto-currencies.” In GINKAN’s case, they might have assumed the SynchroCoin is not categorized as crypto-currencies because it is limited with its usage and cannot be cashed out directly (even though the token will be able to use for payment to some extent in partnering restaurants.. )

It’s worth noting that their legal team, they might have discussed with the Financial Services Agency in advance though, has concluded that offering convertible options to ICOed token does not violate the current regulations and also this new way to fundraise, I believe, is one of solutions which could address the illiquidity challenge of private equity. I really hope that Japanese FSA will be more tolerant of more diverse methods of financing and more capital will be provided to startups.

S. Nishimura

Written by

Venture Capital in SV → now CVC consultant and startup support in Tokyo / 米国独立系ベンチャーキャピタルの投資業務を経て独立。事業会社のCVCの助言とスタートアップ支援に従事 info@scalepartners.co.jp

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade