Equity Capital Markets Blog

Everything you need to know about blockchain, ICOs, and securities tokens

Large majority of top executives are expecting blockchain to change the way they operate. The question that everyone is asking is “How?”. This webinar aims to help you learn how to leverage Securities Tokens and Blockchain to revolutionize your business and disrupt your industry.

Our CTO, Doug, who is working on Katipult Blockchain Solution, is joining Jor Law, one of the leading legal authorities in the blockchain field, and Igor Denisov from Polymath, creator of the Polymath securities token platform that aims to revolutionize the blockchain, to help you learn:

  • What is securities token and why it is better than what we have now
  • How to solve current issues with securities tokenization
  • How to implement securities token into your business and what benefits it will bring you
  • Regulations surrounding the securities tokens, ICOs, and blockchain
  • Everything you wanted to know about Polymath, Katipult, and the partnership between the two companies


You can read the full transcript here:

Katipult: I’ve got two questions just to lay down the bases here, so, first of all, what is a token, how should they perceive these tokens that have been talked about throughout this crypto world?

Doug (Katipult): A token is going to be a digital piece of software that presents some sort of contract that’s happening. The token is used for being able to track a resource, or how much of a resource is being allocated to certain other wallets on a platform. It’s really on an abstract level. At a more general level, token can represent the number of shares that are issued for a particular offering, a particular deal.

Igor (Polymath): It is a digital representation of a really unique identifier. It can be anything from fundamental utility tokens or even like some of the coins that we have, like Bitcoin and Ethereum. They are fundamentally opposite currencies but what we are talking about here are security tokens and they are digital representations of normal, real world securities. It’s a digital form of identifying a share or a unit or a bond.

Katipult: That makes perfect sense. Let’s take the other part of this to Jor, what are securities? Then we will combine those two and go and talk about a broader subject.

Jor (Homeier Law): Securities is one of those definitions that is very, very broad. In a nutshell it’s almost anything whereby there is some sort of passive investment made by someone for some sort of investment income and usually, where the value of return of that investment is dependent on the efforts of others.

Obviously  the real definition is much more broad than that and there are a lot of nuances, but in a nutshell, if you think of someone who is making an investment in hopes of making some sort of return on it and it is not through personal efforts, it’s probably a security.

Katipult: So in short, a security token is a digitized version of that?

Jor (Homeier Law):  That is right.

Katipult: What is it about the security tokens that make it better than what we have now, some people could thing something like ‘’What if their technology doesn’t work’’ and all that, so what really does the security token bring to the table that we don’t have now?

Igor (Polymath): If you want to serve an easy to understand real world analogy, it’s the difference between how the accounting was done before spreadsheets and how accounting is done now. If you go back to 50s and 60s where you have ledger books and everything was handwritten and you had no photocopiers, you were literally just tabulating entries by hand and there was no quick way of checking things. Then you put that in the firm paradigm of having things like Excel and accounting programs… it’s that kind of a transformation.

If you look at how the securities are done now, unless we start talking about the stuff that’s public and stuff that’s some kind of a computerized ledger form, a lot of private security still exists as paper certificates. A lot of the rules around them are still in a very old-fashioned kind of way.

We think about things like removing ledger from a stock certificate, that is still a process that is done in a very old-school way, where a physical letter, or an email letter still has to go out to your transfer agent, he then reads it, sends an email back saying ‘’I will remove the ledger’’ and then the ledger is removed.  

Here, we can do this whole thing literally in seconds and you can have all these rules programmed in so you don’t have to have a lot of people spend a lot of time literally reinterpreting something that can be done programmatically wit much better efficiency.

Jor (Homeier Law): I think it’s just the matter of superior technology for certain players in the marketplace, and for the other players on the marketplace it’s a technology that makes them more accountable and more reliable. So, if you look at the capital markets today, the system works reasonably well, it’s somewhat centralized, you have to trust people but you know our system of market trading and transfer agents by and large works reasonably well.

Blockchain is an advancement, blockchain technology makes it just that more efficient. It could be cheaper, more reliable and requires less trust because you don’t need to go through a centralized person.

Now where it makes an immediate difference now is in the lower markets where things are still being done privately. Most startups and small companies are keeping track with manual records. Some of them are going online now, but it’s still just a online manifestation of manual entry. By having securities tokenized on a decentralized ledger technology then everything from the beginning can be tracked through the blockchain. You have greater certainty and reliability about who has this security, what is the passiveness of this security, what are the rights attached to these securities, can they be transferred, who were they transferred to or from. That’s all tracked very reliably through multiple ledgers so you don’t have to trust just one little centralized place.

Katipult: Great, that just made me a bit smarter! This sounds like it’s going to be a game-changer and that’s what the market seems to think as well, but if I am a private equity firm, investment firm or real estate firm or anything like that, how would I implement tokens into my business?

Jor (Homeier Law): There are multiple ways of implementing token. You could decide that your product is going to be represented by a gem or a token or something and then you could issue out those tokens and have people buy those tokens. An example of that type of ecosystem might be a video game where you play the game and you have to buy gems so you can buy the other things and extend lives and buy time and things extend lives and things like that. Those are token ecosystems.

In the securities world we can go far beyond that. A token could represent a right to some sort of investment contract, we could even attach to a right to have an actual equity of the company. In how you access that of course these days is, you either go hire a developer to teach you how to tokenize and create the token and hire advisors and do all that yourself, or you could go through platforms like Katipult that make that a little bit easier.

So when I think about it, and obviously I’ve been in the space working with Katipult working for a few years, if someone was raising money, they could go and hire the lawyer and a website designer, a developer and marketing folks, create a website and go crowdfunding.

Alternatively they can just go to Katipult and they give them all the tools they need that they’ve already built for them and they focus more on their core business.

Katipult: That’s good. So, in example, instead of issuing shares you would issue tokens and the tokens would represent the shares and all the rules surrounding all of that?

Jor (Homeier Law): Yes, or one day the tokens would be the shares. For example Delaware, which already allows this. If you want to form a company with 10,000 shares, you can also form a company with 10,000 tokens and the tokens themselves would actually be the shares.

Katipult: That answers my next question, it would have been if it works for crowdfunding as well, but it seems like it definitely would. Short question on crowdfunding. In the U.S. for example, you have Title III and I heard about some rules for the secondary market, where, if a non-accredited investor wants to sell his shares or tokens, he is allowed to sell it only to an accredited investor and not another non–accredited investor. Is that true and do you see any change in that?

Jor (Homeier Law): You have to think about what type of token we are talking about. This is a webinar about securities token so I’ll focus on that. So, in securities, the same law that affects non-tokenized securities affects security tokens as well. The fundamental premise is that, if you are issuing securities, you must comply with certain set of laws. And then there is another set of laws that say that if you are exchanging securities then you must comply with the different set of laws.

So, depending on how you issue out your securities, you are relying on certain exemptions. Some exemptions have built in ability to trade them on the secondary market without needing a second exemption. Some other ones don’t have that and then you need to find some sort of another exemption. So it’s never quite as simple as saying ‘’Oh if you do it this way you can never trade’’.

Obviously, laws are not designed in a way that once you own an equity, you can never get rid of it. There is always a way to move it around, it is just a matter of how easy that is, whether you have to jump through hoops to find a new exemption or whether that’s already built into the existing exemption. It’s quite complicated, but if you go to internet and you google Jobs Act crowdfunding matrix, you pull up a handy chart that goes through issuances among the different Jobs Act laws.

Igor (Polymath): If anything, having security tokens supposed to plain vanilla ways of accounting of who owns what, actually makes it in some ways very advantageous because the transfer ability properties of these tokens can be programmed in as well, so, what we have been doing at Polymath was implementing this sort of a built-in white-listing method into the tokens that are building our technology. That allows you to strictly restrict the transfer of tokens to parties that should get them.

So, you can allow somebody to be the owner of it, but when it comes to selling, those tokens can only be transferred out to a party that meets the criteria under whatever exemption that instrument right now exists.

Jor (Homeier Law): That’s hugely important. The companies like Polymath that are doing this provide a really necessary role in the marketplace. If you look at almost all the securities ICOs that begun in the past year or so, most of those that try to comply tried to comply with the initial issuance laws, but they didn’t really think much about what that meant regarding restriction.

You had a lot of ICOs out in the marketplace that actually launched legally but then they didn’t properly restrict trading and now they have issues with securities and whether they have a proper exemption and things like that. So, solutions like Polymath make that easier. Its stuff you could have done anyway, with a good legal team. But it’s easier when you have a platform that facilitates it in a relatively automated fashion that is recognized throughout the industry.

Katipult: Great, let’s try and shift this a bit onto Igor a bit. How does Polymath work? The stuff that you are working on, how will you be able to implement that into someone else’s company or, for example, the way Katipult is working with you?

Igor (Polymath): It would probably be easiest to just walk you through the process through which a new issuer, who is not savvy to creating security programs, would approach this. There are a lot of shortcuts in this because a lot of people are doing the background work and a lot of people are engaging with council before they even approach us about using our technology, but, if somebody has a factory that makes widgets and they want to sell pieces of equity in that factory, it’s a real world business but they have no idea how these security tokens work, they would go to the portal that we are developing.

They would then basically submit a set of information that would form the initial onboarding process. So, simple things like name of the company, name of the representative that is submitting the information on behalf, short business description, where their headquarters are and where they are registered, what they want to do with a security token, what is the aim of it all.

After this they see a kind of a bare-bone representation of what a security token would look like, they can reserve a ticker symbol that the token would eventually have in the market and then they would be passed on to the next stage where they can select and they can apply to a number of different service providers that Polymath has signed up as partners. Amongst them is Katipult.

Katipult is going to be our first KYC portal but before we get to that point we would ask them to consider whether they need an advisor or even a broker dealer to work with them. If they, let’s say, want to go out there and raise capital through solicitations of different investors and do it all in a legal way and will have, when I think when this launch is quite shortly we are going to have around five different broker dealers and the list will expand tremendously later on. These broker dealers will basically guide the issuer all the way through the process. They would also make sure they get in touch with somebody from the legal side of things. The issuer council could be one of the legal firms, Jor’s legal firm being chief amongst them.

At that point they can start really working together and engineering what this token does, what it looks like, what kind of exemptions they would like to use, how much they are trying to raise, what does the market look like and all of this really combines then into this work stream where they design a token, they paper it up so to speak, they create all the disclosure documents needed that are appropriate for the exemption that they are going to use.

The next step is, as you start onboarding the investors, they will be working with Katipult portal to have the KYC / AML and if appropriate, the accredited investor verification is done on that portal and then this would create a record that the issuer would be able to submit to either the regulators if they had asked or later on down the line a secondary trading venue, like an exchange, to verify that yes, in fact, the primary issuance was done correctly, all the checkboxes were ticked and verify the identity of every one of our initial investors.

Out of this work with the Katipult portal and the legal team, all of these verifications would then go into a whitelist and this would sort of an initial primary issuance whitelist, and that whitelist would have all the people, the investors, that were added as part of the initial issuance and the whitelist would have programmed into it as well the transfer restrictions that apply to the various groups of investors depending on if they are U.S. or non U.S. These restrictions would be appropriate for the particular offering exemption that the issuer uses as a part of this offering.

Beyond that, the actual security token is created with a smart contract from the Polymath side. We are going to provide the issuers with a lot of relatively generic templates, very flexible if they feel like going out there and contracting out their own smart contract developer and very custom, very particular, like something with some derivative features or some exotic kind of revenue sharing component that you wouldn’t see normally, they can also do that and we will provide with the resources to do that and in the end of this process what you have is you know you have the investors that you brought on to this issue either through the issuer’s own efforts or through the work of the-broker.

You have the legal framework established by working with council, you have a whitelist of these investors established and you have all the information that you need to certify to any regulator that comes along and asks you what you did that this was all done correctly.

And finally, the product is funded, the tokens are generated and released to the individual investors and that’s the end of your primary issuance process. You have a funded offering with a lot of happy investors that are able to be held on.

Katipult: Just a question for you Doug, where does Katipult fit in into all of this, what is Katipult’s task in all of this? We have the platform, we have the technology as well, how does that fit in with Polymath’s technology?

Doug (Katipult): Sure, I think this is really a great overlap here, the thing that we have been doing for about three and a half years with Katipult now, is working with different regulations and up to 20 different jurisdictions, basically understanding their compliance process. So that’s Reg D, 506B, 506C, Reg A, Reg CF, some stuff in the UK, Singapore, Canada, all over the place, we have build a form engine for being able to create those dynamic forms. The form engine was so helpful.

In the U.S. it’s quite simple for a Reg D form, for Reg A form it’s all very simple but what we see happening in other jurisdictions is that they need to actually solve problems like AML feed in Europe where we have to make sure that someone is suitable for a transaction. This comes up in Canada as well. We need to solve problems like if someone is a politically exposed person and how we are onboarding them into the security. Then also, if someone is a U.S. investor coming into a non U.S. deal there’s also additional paperwork to be filled out.

We have the ability to custom build those different forms out and basically deliver them as packages that someone can just drop down and select on the Polymath platform. We are really coming in with what we learned in all of those different areas with the ability to change it as per different legal recommendations, but just have a technology that can respond to that very quickly. We also have the ability for when the issuers need to come on to the platform and specify what regulations they are going to be under and to provide more feedback on that, all of that can be done on the Katipult platform.

Basically it creates the proper situation where you have all the investors on one side, the issuers on the other and we are just creating the connections between them. That connection is a compliant onboarding process for KYC, AML suitability accreditations, CHF in some regions. What is going to look like, like Igor was saying, the issuer will choose which KYC provider they are going with, and Katipult is really excited for being the first one on Polymath network for KYC providers. Then they will come over to Katipult, we will grab some information from them to determine what kind of issuer they are and then we are going to probably, on our admin side, have somebody look over that when it’s ready to be launched we will launch that.

Now they will put the deal up to be funded. When the investor is interested in basically going through their KYC process, pre-funding, they will look at the security token and it will direct them to the Katipult platform. They will set up their account, they'll go through their form, their 506c form, and so on, and they'll be sent to their platform.

Meanwhile what we are doing on the Katipult side is we are getting that verify investor piece looked after, we are getting that KYC completed and going through all the data to perform the due diligence. The issuer can log in at that stage and can see all the investors that have applied for the KYC process and they can see what percentage of the way they are through, who has done it and they can go individually and whitelist them. So it gives them the opportunity to just whitelist everybody or the issuer can go on and choose which investors he doesn’t want to allow on the platform. That’s the main piece that we are building out here and we think that is a super significant back-end process for the Polymath network.

There is a whole lot of technical stuff going on in the background to make that happen and Polymath team has been absolutely amazing to work with, really responsive. We’re going to get our slacks connected, so I’ll be talking on the same channel, all of our developers and all of their developers and we are just really happy to be working with Polymath on this part of the project.

Igor (Polymath):  Sharing Slack is how you know it’s serious, right?

Katipult: That is great to hear. A lot of what I hear about these tokens, a lot of it goes into KYC and AML accreditation. What other areas do you see this being applied to? I am talking about the next year maybe, but also further on in the future. What are the possibilities or the limits for that matter, for the security token?

Doug (Katipult): You know, one I would love to hear Jor’s opinion on is, I still think that subscription agreements will be part of the private capital, being handled by security tokens and I am curious if you think that’s the case Jor, or do you think we can get away from subscription agreements because digitally we know that if someone invested in it and came from that identity?

Jor (Homeier Law): I think that, for legal purposes, you will always have some sort of subscription agreement. Whether it’s a piece of paper or it is hidden within terms and conditions that someone agrees to while subscribing to something online, I think you will still have those. And where it is appropriate, you will also have disclosure documents as well. I wouldn’t be surprised if you saw everyone in traditional securities moving to blockchain space and adapting their solutions for it.

When you get your data rooms and when they figure out how to hash their data room to handle transaction and things like that, I really don’t see a reason why, if we are able to lower the cost of the transaction and the time of transaction down to much lower that what you are seeing now, every securities doesn’t come on the blockchain.

I do think that it starts with the smaller companies and the blockchain companies and things like that, but once everyone realizes that this technology works and that there is infrastructure and a community behind it then effectively the enlarged copies will end up recognizing it as well because it is a superior technology.

Igor (Polymath): I think there is another natural extension to this, I think it is the same kind of evolution as the internet, where in 1994 you were dialing in with a modem and lose your phone connection for the hour you wanted to be online and was very apparent what was going on there, there was no kind of curtain separating it. Right now, people are online all the time and it’s seamless.

I think you will go from having the old-school process like a paper subscription agreement that’s signed in ink. Now we have thinks like DocuSign and all these other ways to digitally manage signature. Next step would be that you take away these kind of breaks in the process and you can manage the whole thing through some kind of immutable record or a blockchain or another kind of a distributed ledger.

Your user experience will just improve and you will not be consciously aware, the same way you are not consciously aware right now that internet is still based on TCP/IP, you don’t feel that protocol working and I feel it can be the same thing once this technology is fully realized. You don’t feel that your software goes through a cloud, cloud based infrastructure now, you won’t feel that your business processes are being run with the blockchain back end either. It will just work, and it will work better and it will work cheaper.

Jor (Homeier Law):  It certainly does require folks to change how they do business now. These days I spend a lot of time consulting with law firms on how they have to adapt the practice of law in kind of a tech enabled and blockchain enabled future because it fundamentally changes how securities attorneys normally practice law. In the world of smart contracts and then the blockchain, they have to adapt how they practice in order for them to become efficient. This affects everyone, even transfer agents.

I was at a conference, speaking with the transfer agent yesterday and transfer agents have historically been the definitive source of who is the record holder of these securities. You go to the transfer agent and you look at their books. In the blockchain transaction that transfer agent, by law there’s still as effectively the official register so you still look at the records, but they admit that in those blockchain transactions that they are doing, they are just getting the information from the blockchain. So they are relying on the blockchain to do their job already. Whether that makes them more efficient or where that places them in the future, who knows.

I think it just makes them more efficient into regulation change and et cetera but it’s very interesting that people are all adapting to this system and right now it cost more to figure it out but in the future the cost are definitely going to be lower than what you see today.

Katipult: Ok, so this will definitely be an everyday thing from what I hear, that’s going to be used for basically everything. Everything that can be made more efficient, it will be used for?

Jor (Homeier Law): Right. That’s true with all corporate finance. Back when Katipult and Verify Investor started a few years ago, people were talking about finance versus crowdfunding. Just three or four years later, all of these ICOs and STOs they are just raising capital. They don’t talk about themselves doing crowdfunding anymore, although that’s really what they are doing. But they are just calling it moving capital.

And about two years ago when we were at these crowdfunding conferences we had a bunch of people that would get up and say ‘’Hey, we call it crowdfunding now, but in the future we will just call it funding’’. That is already starting to happen.

Doug (Katipult): One of the ways we looked at it in Katipult is that if software should be written on blockchain, expected to be disrupted and to be put onto blockchain. We take that very seriously on our side because a lot of the processes that we go through in terms of KYC and AML, all this could be stored through a blockchain IPFS system. We look at it basically that if we don’t come up with that product and put that product out there, someone else will come out with that product. It just should go towards blockchain.

Going back to Igor’s example, ‘’Hey you are still doing this with paper, you haven’t heard of Excel?’’. Of course, we use Excel for that, so I think it will be the same thing. ‘’You are still using MySQL database? Oh, come on, just do this right, you should be on blockchain’’.

Igor (Polymath): The software being over by cloud, in 2010 I bought a MacBook Pro with a CD drive. Now you can’t get one at all because everything is done by cloud and this is only a five year difference for that technology to take root. When the gains in efficiency and the gains in cost savings are significant enough, it will be much, much faster.

Katipult: If you guys are ready for some audience questions, I’ll fire away. ‘’What do you think the market cap will be at the utility market at the end of the 2019 and what will the market cap if the security tokens be, at the end of 2019?’’ Any predictions on that?

Jor (Homeier Law): That is hard to say, we would have to figure out how people feel using tokenized technology to track the utility and there are a lot people who are going to because it’s more efficient, it’s more reliable etc, but truth be told, most of us use applications that have utility and they are not tokenized and they work reasonably well. So the extra value out of the utility token isn’t necessarily there.

Whereas with securities, I really do think that every security is going to benefit from being on a blockchain. Once you get a critical mass of people doing this, everybody else just does it. In terms how big that market could look like, I think you just look at what the securities market is, what the market cap of the securities market is.

If you look at Red D filings for example that filed to SEC in the U.S. alone, there is over a trillion dollars of capital raises which does the Reg D. If all of those tokenized technology then at least you know that issuances are roughly around a trillion dollars. If you dig up the stats on how big the existing capital engagement on the capital market is and all of that gets tokenized, then you would think that it’s roughly the same number.

So, 2019, who knows? The industry is not going to immediately turn to tokenization overnight. You are going to get early adopters and they are going to work out the kinks and slowly more and more people will come through, but certainly it will not be a small number.

Doug (Katipult):  I have something interesting in terms of comparing growth that is going to happen in this market. The CEO of Kraken in February of this year said that he expects that in 2018 it’s going to hit one trillion dollar valuation in cryptocurrency market. I think that’s referring to security tokens and coins and like a whole bunch of stuff all lumped together for the one trillion dollar valuation.

But if we look at it like Apple stock, last time I looked at it, it was about $800 billion market capped at, so those two aren’t that different from each other. I mean there is 20% difference there, but that’s just one company, one public company, although one huge public company, but one of thousands of public companies.

The idea that this whole market should disrupt over a long, long period of time, we will see every security moving over to this technology because it is a proper way to represent it. There is just so much growth that can happen here. We are just the size of one company right now.

Katipult: Sky is the limit. Another question here that we will probably not be able to give a definitive answer to because you would need to know every jurisdiction here, but which jurisdiction is best suited for ICOs, being utility based or security based? It’s tough to say when you don’t know the rules in every jurisdiction, but maybe if you guys have some advice on that, maybe It could be a fortune in Latin America, Asia or Europe or U.S. for that matter?

Igor (Polymath): My perspective on this is that it’s pretty simple. Let’s not talk about the utility part of it, let’s talk about the security part. I think the biggest think the issuer should think about when thinking to decide where to go is access to capital and cost of that capital, because if you have access to capital and you can get funded in a certain jurisdiction, your cost of compliance is worth it.

There is a reason why the SEC is as protective as it is about the U.S. capital markets. It is because it’s one of the most active and richest pools of both capital and knowledge of how to deploy that capital. They know that if they weren’t doing their job a lot of foreign companies would come and try to access this pool of capital and likely end up preying on some of the people in that market that are U.S. based. If you can raise for your fundraise in the U.S. market, then go ahead and look at the U.S. exemptions and see if you want to follow those regulations. If you are doing it in Canada and you have to use the private offering exemptions and only deal with the credited investors, well, if you have enough accredited investors to fund your project, than that’s the way to go.

I think the choice was to comply with regulations and which regulations you want to go with, what kind of burden you want to take on, that is really just the answer to the question can you really get funded wherever you are.

Jor (Homeier Law): To add to that, while you were asking those questions I was doing some quick Google searches on market cap. In December 2017, Goldman Sachs suggested that global market cap has hit about $80 trillion, this is probably for all listed companies. Then in January Barron’s released an article saying that the U.S. market is worth now $30 trillion. That is 3/8 of the entire market cap of public securities. If it’s the U.S. that you need to go to, maybe complying isn’t that bad.

If you look at it, the same rules that affect cryptocurrencies, ICOs, STOs and things like that, they are the same rules that have power over the U.S. securities market for a long time. They are not that bad, and because they are not that bad, the U.S. market is so robust.

I do think that when we are looking overseas there’s a couple of things to think about. If you are looking for favorable jurisdictions the key thing, I thing Igor mentioned it, is where can you get the deal done. That is probably more important than anything else.

The second thing you look at is tax. A favorable jurisdiction for a U.S. company for tax purposes could be a different jurisdiction than Canada because how tax work there and things like that.

The other think to look at are the regulations of that country. Obviously there are a few counties that keep coming up like Gibraltar, Switzerland, Malta, Bermuda recently came up with favorable laws, Singapore, a quick Google search will show the list of countries that are favorable. But the key thing to remember is that just because you are located offshore it doesn’t mean that you don’t care about any of the other countries laws. If you are in Malta and Malta loves cryptocurrencies in blockchain companies but you are effectively conducting your business and soliciting investors outside of Malta, in the U.S., Canada etc, you better bet that those countries are going to care about you complying with their laws as well.

Katipult: What size of grace is appropriate for an ICO platform? Is it $100 million? Is it more effective going ICO or private, as there’s a significant marketing cost?

Igor (Polymath): It should be driven by your use of proceeds. Because there are a lot of projects that earn way more than they need a lot of people have said ‘’Well I actually like smaller projects’’, because someone that raises $5 million and then goes hypothetically goes and puts their utility token out there and think it’s a great project and it is starting at $5 million and this should be $100 million. It goes up 20 times and everybody is happy. That’s a phenomenon certainly not the norm and it’s a sign of a relatively mature market.

How much you raise should be generally guided by a combination of your use of proceeds and your timing to get back to the market. The utility tokenized ICOs have been rather unique in that they’re typically one shaw-and-stun kind of deals because unless you leave a lot of your own tokens in your own sort of company pool so you can sell them into the market later and raise additional capital, typically it’s a single raise that you do, that will get you to a fully fleshed out product or a platform that you want to launch your project on. That is not how we would typically work for something that is venture capital based. There you would do stages and try to establish yourself with 12 to 18 month kind of a cash runway period so you have enough burn to last for maybe 2 years, but not much more than that. You can also keep raising at a higher and higher valuation.

Doug (Katipult): I really like the point that he is making. The ICOs that have been done in the last year, the amounts they have been raising were astronomical. Sometimes it’s junior groups that are raising it and sometimes they have solid advisors behind it, but they don’t have any work they have done as a team and the idea is that, with venture capital, you start with your seed money and then you move into something like an ivory round, rounds A, B and C.  

Those checks and balances are there to make sure that the group keeps on succeeding, and if they are going to fail, they can recognize that they are going to fail early. So, it’s kind of an anomaly that in the ICO world we started off with these massive raises instead of doing the measured approach that the VC groups put out in front as a method that works.

Katipult: Thank you all for joining.