Invented to democratize access to funding, it could be argued the crypto token hasn't quite lived up to its goal.
Already gone are the days when any investor could get access to the next big offering (most early issuances, it seems, are now catering to the same stable of Silicon Valley VCs). But one new project is looking to right the narrative, with a token of course.
Revealed exclusively to CoinDesk, Republic, a crowdequity platform that can help ICO issuers manage token sales that was spun out of AngelList, has raised $12 million in commitments for a token presale.
Led by Binance Labs, the investing division of cryptocurrency exchange provider Binance, and NEO Global Capital, an affiliate of the public blockchain project of the same name, the round also drew support from East Chain Co., Jeffrey Tarrant and Passport Capital. (Investors purchased both the new crypto token and equity in the company.)
Looking ahead, the initial raise is part of Republic's interest in ultimately raising as much as $92 million total selling its crypto token, with a yet to be announced public sale.
According to Republic co-founder Kendrick Nguyen, the token will be used to incentivize users to take an active interest in their investments, by allowing Republic to potentially provide access to ICO deals and offer a share in the revenue earned by the company as it grows.
As Nguyen told CoinDesk, "Essentially it's us going IPO without going IPO."
And that's Republic's whole schtick, offering equity options, including tokens, to any kind of investor. As such, Republic is designing its security token to do the same.
"We will be doing a combination of Reg D, Reg S and Reg A+ to make sure our tokens are widely available, irrespective of income or net worth in the U.S. and beyond," Nguyen said, adding:
"There's no reason why you have got to be a millionaire to participate in startup investing. Anyone anywhere can and should invest in startups."
And that mission of democratizing investing worldwide is what piqued the interest of Republic's new investors.
"Republic brings new investment opportunities for retail investors to participate in well-curated startups," Ella Zhang, head of Binance Labs, wrote CoinDesk in an email. "Binance and the Labs' teams are working towards the freedom of value-exchange, which we believe Republic will shed light on."
Tony Gu, a partner at Neo Global Capital (NGC) concurred, saying, "Republic has demonstrated their capability of choosing the best projects and keep the process transparent and compliant with regulation rules."
And further, East Chain Co.'s Saoud Al-Humaidhi told CoinDesk:
"We saw the potential of crowd-investing through last year's booming ICO market, and we believe a platform that enables a more curated and legally sound offering is bound to succeed."
The SAFT evolves
Still, none of the investors have their Republic crypto tokens just yet.
In fact, the precise details of how many tokens there will be, how the incentives and revenue sharing will work and other details are all yet to be disclosed. Those will come when Republic drops the white paper for its ICO.
But, what is known shows that Republic is getting creative with its fundraising model.
For instance, it's using a mechanism it's calling a Simple Agreement for Future Equity and Security Tokens (SAFEST), which will give investors a choice between both tokens and shares in the firm. As the name suggests, the model combines elements of two earlier funding structures – the SAFE and the SAFT.
Here's how the SAFEST works: when the token is ready, pre-sale investors will have the option to take their full investment in tokens or up to 20 percent of their investment in equity. If for some reason Republic fails to launch the token, investors can convert all their investment into equity.
Nguyen explained, "At the end of the day, many of these projects including Republic, there's an independent value for the company that's uncorrelated with the value of the token, and we think that's how it should be."
Speaking to the experimentation, Nguyen said, entrepreneurs in the space need to continue being creative with their structures since it's clear not every aspect of ICO model is completely worked out.
He told CoinDesk:
"This whole ecosystem is so new, and I think it's up to every market participant to be thoughtful and responsible in how they conduct their fundraising."
Considering its goals, it's no accident that Republic looked abroad for backers.
As the company starts preparing for its public sale, it's interested in allowing investors in several markets that haven't necessarily been targeted by ICO issuers in the past or are challenging for a U.S.-based company to tap into.
NGC's Gu said the groups' connections throughout Asia, where retail investors are keen on cryptocurrency, are its key value-add for Republic.
"NGC believes if Republic does well in the USA, it will easily scale up to other countries and thus, encourage more global investors to join the blockchain ecosystem," Gu continued.
Al-Humaidhi of East Chain Co. echoed a similar sentiment, pointing to the Middle East's large pool of young, high net worth individuals as potentially eager investors.
"We will definitely see great value within the digital economy in the Middle East region over the next 10 years," he said. "We believe that this relatively untapped region holds huge potential,"
Another decision that seems to align with Republic's interest in opening up its crypto token to investors all over the world is its use of Stellar, a blockchain project that's typically been associated with trying to disrupt traditional international remittance companies serving the developing world.
"One thing a lot of people don't know about Stellar is their impact driven mission," Nguyen said, arguing that the project's team prioritizes inclusiveness and diversity – values that could be key as Republic makes its platform a kind of meeting place for any type of investor interested in backing new companies worldwide.
Plus, Nguyen continued, Stellar seems a safer bet over ethereum, where a significant number of ICO issuers launch their tokens.
Speaking to what he sees in Stellar over ethereum, Nguyen said:
"First and foremost it's a lot cheaper and secondly it's more secure, given that what we do is not heavy on smart contracts. ERC-20 is more susceptible to hacking and security risks."
Sign image via Republic/Facebook