Published on March 10, 2020. Written by Lars Olsson.
During our own venture capital funding rounds, we found it extremely difficult to manage the complexity of such endeavors. First of all, it’s a hell of a job to find investors, as not every person in the room gets your innovative way of doing things from your two-minute elevator pitch. But in our experience, the real struggle starts when you’ve got your supporters all set up and want to close the deal: and finally settle the contracts.
For us, this process full of legal and organizational hurdles took several weeks and cost us a five-figure sum. Only after investing that many resources, we could finally start building our business. We noticed that in comparison, buying a security was way easier for investors. In addition, they even received a transferable asset providing more liquidity. However, for startups like us, issuing a security seemed an even more expensive and complex adventure at that time.
That was when we came up with our product idea: We used digital securities to simplify the investment process. These assets are issued on a Distributed Ledger Technology (DLT) network such as the Ethereum Blockchain. By radically reducing the required middleman we achieved that entrepreneurs like us can now issue a Digital Company Share just like a security. But in comparison to the old way of issuing securities or traditional venture capital rounds, digital securities are faster and cheaper for everybody involved.
Companies now have the full flexibility to include voting rights for investors
Digital securities make it easier for companies to onboard investors by selling Digital Company Shares. But they also enable startups to include voting rights into the asset — and thereby allowing investors with Digital Company Shares to have a say in important company-wide decisions. This is particularly interesting for investors who want to participate more within the company.
The technology we use allows us to structure a security in several ways:
First of all, there is no obligation to include voting rights at all. With no voting rights, it’s easier for companies to onboard larger numbers of investors which is an important aspect, too. Managing a complex cap-table can consume a lot of time, especially if the voting procedures aren’t set up in a digital way. But if digital voting becomes part of your corporate governance structure, it becomes a powerful feature: You choose which type of actions will need approval and how this approval can be expressed in a voting procedure. This gives issuers the power to effectively decide how strong the voting rights of their investors shall be.
We worked together with our legal partners at Ashurst to predefine options that streamline this structuring process.
Perks of using a Blockchain-secured voting procedure
In contrast to traditional corporate governance structures, Blockchain technology enables a fully automated voting process that is more transparent and secure. Cryptographic signatures enable us to seamlessly verify the identity of a user. This guarantees that only persons owning the securities are really able to vote. At the same time, the voting is made transparent to all participants while the data is secured from unauthorized access. You don’t want the participants to influence each other? A Blockchain-secured voting process allows secret voting and won’t reveal the results and all single votes before everyone participated.
Digital voting rights can be fully transferable between investors. If the ownership that is stored on the Blockchain changes, the right to vote is also transferred to the recipient of the asset. At this point, no action of the issuer is required. The voting mechanism always relies on the transparent ownership register stored on the Blockchain. If an asset is transferred, the voting mechanism is not able to count a vote from a former investor.
By developing this feature we help issuers to provide an additional funding option for investors that want to have a say in the company. By doing so the Digital Company Share gains more similarity to equity funding. In contrast to traditional equity funding rounds, the total costs for issuers are lower and investors receive a transferable asset with more liquidity.
We are happy to answer all your questions about funding your venture by using Digital Securities. Please feel free to contact us right away or sign up for our newsletter here.