Security Tokens are Revolutionizing Venture Funds

The blockchain revolution has introduced an array of innovations into society, among them are cryptocurrencies, also known as digital assets or tokens. Tokens can serve three functions; a token can be an asset token (security), a payment token, or a utility token. By offering a new approach to equity and investment, security tokens are poised to revolutionize venture funds.

What are Security Tokens

Security tokens live at the intersection of two technologies. They are a mix of blockchain technology, tied with concepts from traditional financial products. Similar to shares of stock, security tokens represent a piece of equity, giving the holder ownership of the issuing company. Since these tokens derive their value from an external, tradable asset, they are classified as security tokens and become subject to federal securities regulations. Thinking on a much broader scale, the technology behind security tokens enables anything to be tokenized, including debt, real estate, public & private equities, etc. If something can be owned, it can be tokenized.

The Benefits of Tokenizing Securities

Security tokens offer a wide array of unique benefits. The first major advantage is transparency. All security tokens are distributed through the blockchain ledger, meaning that all transactions are documented and can easily and quickly be retrieved by anyone with approved access. This type of transparency enables real-time access to data that is both safe and trustworthy.

The second is optimal deal execution; blockchain technology provides a direct link between the company issuing the security tokens and potential investors. Since intermediaries are removed, companies can expedite the security offerings process. In addition to allowing immediate trade settlement in secondary markets, investors are likely to experience lower fees since the cost associated with bankers and other intermediaries are removed. Eventually, companies may also be able to remove lawyers from the process due to the power of smart contracts.

The final aspect is exposure and access. Security tokens enable private investments to get global exposure. Currently, there aren’t many systems which encourage or allow an investor to participate in private investments abroad, the capital and desire are there, but the financial vehicle to make that investment possible was lacking — until now. In April 2012, the JOBS Act (Jumpstart Our Business Startup) was written into law, creating more funding opportunities for startups and small business in the U.S. by easing many of the country’s securities regulation and enabling companies to use equity crowdfunding to issue securities. In short, security tokens have allowed public investment in the private sector from non-accredited investors, and the JOBS Act has eased the restrictions around it.

The Future of Security Tokens

Tokenized securities have opened up a new door for investment. Private companies which were once unable to access funds, now have new mechanisms to do so. In the first quarter of 2018, $4.6 billion was raised in Initial Coin Offering (ICO) sales — that’s 85% of the 2017 total. The beauty is that security tokens aren’t solely reserved for startups, venture funds can use them as well. In the future, we’ll see more funds circumvent the traditional limited partner model in favor of raising capital via security tokens.

A great example of this can be seen in out latest joint venture Orthogonal Collective, a wing of our company that is focused solely on providing strategic capital to socially conscious cannabis companies. Through the collective, we provide a new approach to investing. One that administers vital resources and strategic capital to positive impact cannabis companies. Together, we have developed our own cryptocurrency using a security token called the Aina token. Each token represents a fractional share of the collective, and the funds raised from the Security Token Offering (STO) will be used for strategic investment and company operations. As one could imagine, STOs can and will become a financial tool that both businesses and companies like Orthogonal Collective can leverage to raise capital and fund operations.