What Does The SEC’s Approval Of The Blockstack Reg A+ Offering Mean For The Future Of Digital Securities?
Last week the Securities And Exchange Commission approved a landmark request to allow Blockstack, a crypto services company, to offer their Regulation A+ offering to the public.
Muneeb Ali, co-founder of Blockstack, highlighted the importance of this in saying:
“This is the first time in U.S. history that a crypto token offering has received SEC qualification. We believe this is a huge step forward for decentralized applications, internet security, and privacy … It is a truly groundbreaking day for decentralized technology.”
He’s right.
It’s a huge win win for digital securities overall and the struggling Reg A+ offering.
But, it’s also an absolutely terrible offering if you look at the terms.
An A+ for utility tokens with no equity, no voting rights, and no revenue share.
My initial reaction is: why?
I don’t see it as a complete win for non-accredited investors.
Early participation is good but meaningful participation is what matters. They probably counted on this being approved so the terms wouldn’t matter to starved retail investors.
I don’t love it because it’s almost like ICOs all over again. They’re dumping bullshit utility tokens onto retail investors while their previous rounds offered equity to mostly accredited investors. Thankfully at least this time around there are investor protections.
If the SEC begins opening up more A+ token raises it would be an option to grow the STO space and chances are it wouldn’t cost the full amount Blockstack spent trying to be one of the first.
However, from the shareholders perspective an A+ might not be the best for them.
If US retail investors are the only money available and the funds are needed to grow the business, by all means, it’s a good deal for everyone. But if there are other paths available to the issuer, a Reg A+ allows 30% of the raise to be insider selling which isn’t ideal as it reduces their exposure. As a shareholder, I would want to know the control persons are locked in place with golden handcuffs forcing them to work for me and the other shareholders until they die.
It frustrates me when core members leave a company. Was Microsoft better off when Bill Gates handed the reigns to Steve Ballmer? It’s a cherry picked example and an argument could be made that Apple is more profitable under Tim Cook, but I prefer the original vision of Steve Jobs and other founders who had a vision of what they wanted to accomplish.
I believe Jeff Bezos got a divorce because he will always have to work until he dies. There’s no one on the planet large enough to liberate his fortune so it made sense for MacKenzie to peace out. Notice her settlement was 4% of Amazon which made her NOT a control person and able to sell her shares as she wants.
Anyone with 5% or more of the company is vastly limited in what they can sell which is why the Reg A+ is so appealing. The other alternative is a direct listing like Slack did where they’re selling company and insider shares or being bought out which benefits all shareholders equally.
Final thoughts
In 5–10 years when tokenized Reg A+ offerings are reasonably obtainable, no one will remember this sub-par offering.
I think their biggest danger is the tokens rising in price and having to file a S1. That’s millions upon millions of dollars.
Just tokenize your equity and do a Series A or Series B instead of going down this complicated road would have been my advice to them.
But, here we are.
The road to the future is sometimes paved with iterative improvements instead of massive breakthroughs.
But, anything is better than ICOs, so we have that to celebrate.
Per aspera ad astra,
Mav
