Blockstack, the startup building a decentralized internet that inspired the main storyline in the HBO show “Silicon Valley,” is looking to raise $50 million through the SEC’s “mini-IPO” framework. If approved, the move would be the first government-sanctioned public security offering from a U.S. blockchain company.
The New York-based startup filed its offering statement with the Securities and Exchange Commission on Thursday using its Regulation A+ “mini-IPO” framework, which lets early-stage companies raise up to $50 million from the general public. Only a handful of Reg A+ companies have moved on to list on a public exchange.
Blockstack plans to use the net proceeds of the offering to develop its decentralized computing system and app ecosystem. Since 2013, the company has been building an alternate, blockchain-based internet that removes the need for people to trust large companies and platforms to protect their data.
In theory, what Blockstack is building would remove the need for third-party servers that control customer data, address problems like data breaches, and let users reclaim control over their digital identity and data.
Given regulatory uncertainty, U.S. markets have been closed to crypto projects recently. The SEC is already sitting on a backlog of Reg A+ filings, but Blockstack wants to set the standard for what might become the new way to fundraise for blockchain projects.
“Upon approval this can establish a valid path to a SEC-qualified token offering in the U.S.,” Blockstack CEO and cofounder Muneeb Ali told Cheddar by email. “This process will become easier over time and I do expect projects to follow much of the frameworks that we’ve created.”
In 2018, the SEC subpoenaed dozens of blockchain startups for issuing unregistered token offerings, which resulted in penalties, mandatory securities offering registrations, and for some, reimbursement to investors. Last week, the SEC released its long-awaited “plain English” guidance on when to treat tokens as securities, as well as a response to a no-action letter request from a company called TurnKey Jet that demonstrates the government agency’s official stance on when a token can be classified as a security.
Many are calling the recent moves by the SEC the nail in the coffin of reckless, unvetted, pump-and-dump initial coin offerings.
CEO Ali maintains that Blockstack’s new filing is consistent with the SEC guidelines released late last week.
“Filing benefits everybody, especially our stakeholders, because it demands more transparency into the project and brings a digital asset class into the mainstream markets over time,” he said.
Blockstack has already raised more than $50 million in venture investment rounds from Union Square Ventures, Y Combinator, and Lux Capital. In 2017, the startup issued an initial coin offering to accredited investors. In December of last year, Blockstack tapped $25 million of that funding — a move that demonstrated a more measured approach than most startups that quickly burned through the money they raised in the ICO craze.
Blockstack has been in a confidential “test the waters” submission process with the SEC granted through the Reg A+ framework, which requires companies to make their offering memorandum public 21 days before SEC qualification.
“We have sent in a couple of drafts earlier and felt confident to publicly file,” Ali said. “We expect the SEC to consider the decision carefully.”