Sep 25, 2018
Emma Channing, CEO and general counsel at Satis Group, brings her legal experience and token space expertise to Blockchain Bridge to delve into what it will take for the capital raise and security token market to take off.
Emma, who worked on Blockchain Capital's security token offering (a seminal moment in the space), discusses what's changed in the market since then. She talks about the emergence of Alternative Trading Systems (ATS) for security tokens -- i.e. Sharespost; OpenFinance Network and Templum -- and why there's change in how the market views these offerings, who uses them, and ultimately how they'll operate (risk management, smarter contract design and more adept use of regulations to limit "flow back" into markets).
Emma goes into why we're seeing more interest from sophisticated and traditional rather crypto-rich investors in security tokens, due to the latter being skeptical of more regulated offerings because they are used to the ease of transactions and speed of investing in the ICO space. Emma also explains why she believes if a token is truly a utility, then you can't turn it into a security, or you'll kill it "stone cold dead."
According to Emma, security tokens are a "revolution not an evolution," and that confidence in the market still comes from the traditional approach of raising in stages. She believes this is healthier then raising your next 10 years of financing in one year. She also believes that Family Office Networks and institutional investors who are looking for more custody and control (paper & digital), will start opening up to engaging with the space. And that to touch a security, you need an ATS and a broker dealer license; without them you face serious negative consequences.
Emma talks about the difference in perception versus reality in security tokens, and offers Blockchain Bridge listeners some tips for how to navigate this market:
- It's really important to have a capital markets background.
- All the rules of investment banking still apply. Smart people want to work with your securities lawyer and international law firm, not your blockchain lawyer -- don't take on that risk.
- There's still a huge misconception about how much can really be raised. Conducting a $5 to $10 million raise (up to $20 million) is more realistic these days.
- Investors are looking for executives who a have been successful in other fields, not people who are just slapping "blockchain" on something and thinking it'll blow up for $50 million.
- Only a handful of projects knocking it out of the park, including protocol based offerings and teams that have been up and running for a while, and who have major VCs involved. Mindful applications and uses of blockchain that align with its core value proposition, and developers familiar with the tech to deliver products will be the winners.
Emma reminds us what's exciting about security tokens is that they can trade instantly, and they're a fantastic way of addressing illiquidity (for private equity). When the rules can be set by the issuer, they can control how founders are rewarded and how long they're locked up, which can reduce the pressure to exit.
Emma talks about why she likes to refer to whiskey receipts case law when trying to understand securities, and why she believes it will take 3-5 years before we'll have the necessary legal precedence we need for security tokens.
She goes into why the SEC is leaving room for a dual token structure, and why the definition of what's a security across global markets including Europe, Asia and the US, is causing many to projects flee offshore given the uncertainty and near impossibility of doing a security token in the US.