Raising capital for companies is an exercise in endurance, patience and unfortunately some gamesmanship. In the span of my career, I’ve been involved in capital formation both at the public market and private investor level no less than seven times. It never gets easier, particularly since the financial crisis. Growth companies need growth capital — otherwise, they would not require Series A, B or C rounds of investment. 

Fortunately, with advances in blockchain technologies, the tide may be turning to usher in a new capital raising process in which accredited investors can increase access to private deals normally in limited supply, and companies can market to them quickly, efficiently and without an intermediary. I’m not talking about initial coin offerings (ICOs). I’m referring to a new use of blockchain and fintech to create a new vehicle for capital raises.

Tokenized Security Offerings (TSOs)

TSOs are a new fundraising method for both companies that need capital to grow their businesses and for accredited investors who wish to invest in these companies. As someone who is preparing to release one via Ethereum, and as someone who is taking advantage of blockchain technology at my current company, I’ve learned a lot about the technology.  

It is one of the most practical uses for blockchain technology that I have found. A TSO is the use of a blockchain to match willing sellers of securities offered by a company to willing buyers of securities who wish to purchase them. A TSO, not to be confused with an IPO, utilizes the inherent capabilities of blockchain and the purchasing power of well-accepted cryptocurrencies to execute a capital raise.

Private placements historically are the way in which companies in the early stages of their development fund their business. These instruments are promoted and sold by the company, a broker-dealer or both, and are generally pitched to angel funds, venture capital funds or wealthy investors who are accredited. The concept of a TSO builds upon the private placement model using blockchain as a distribution mechanism. 

Tokenized Security Offerings In Practice

A tokenized security offering can best be described as a “public-private” security offering that utilizes a Securities and Exchange Commission (SEC) regulatory framework, such as SEC Rule 506(c) and the issuance of securities that are sold via blockchain technology like the Ethereum Network.