Industry VC fund Blockchain Capital plans to raise a new fund by creating a blockchain-based token and selling it to the general public.
Blockchain Capital will offer its so-called "BCAP" token through an ethereum-based smart contract, and tokens sold will represent shares in a new fund called Blockchain Capital III Digital Liquid Venture Fund, LP, the firm said today. In addition to the ICO, Blockchain Capital will raise funds via the traditional route through another fund, Blockchain Capital III, LP.
The fundraise is Blockchain Capital's third, coming over a year after it raised $13m for a fund focused on bitcoin and blockchain startups.
The sale is the first of its kind for a VC fund (not counting the smart-contract funding vehicle The DAO), continuing a trend of token sales that advocates say represents a new means for tapping the market for capital and that critics argue is a model prone to fraud and mismanagement.
Yet in conversation with CoinDesk, managing partner Brock Pierce positioned his firm's approach as different than others that have pursued token sales.
He told CoinDesk:
"We're a security just like someone doing a big crowdfunding campaign, but we're tokenizing that security. The difference is everyone else is trying to circumvent these regulations. We're saying, 'Is there a way to work within them?', and the answer is 'yes'."
The token will be registered under Singaporean law and will be combined with Regulation S and Regulation D filings that offer crowdfunding privileges pursuant to the 2012 JOBS Act. The fund will raise $40m through traditional means and $10m through the ICO.
Complete details of the filing are expected to be released April in the official offering memorandum.
In explaining his rationale, Pierce was critical of attempts by many ICOs to avoid portraying themselves as a security to avoid regulation, saying that this practice would ultimately be harmful to the ecosystem.
"What most people have been doing is going through and creating these convoluted structures for the purposes of circumventing regulation," he said. "A bunch of these ICOs have regulatory overhang, meaning the principals behind these companies could get indicted for not having done this stuff compliantly. And that's a risk factor that I don't think anyone's assessed when looking at the various projects."
Pierce reckoned that Blockchain Capital's issuance of a regulated token will be a game-changer because it mitigates legality questions, betters allows for potential investors to assess risk and thus opens the doors for entrepreneurs to more easily access capital.
"We've architected our ICO acknowledging that we're a security. I believe that this will be the roadmap for everyone going forward," he said.
But the disruptive impacts will expand far beyond just the world of ICOs, Pierce believes.
"We're doing this as a way of pioneering what we think is the future model for not just venture capital, but private equity, real estate and everything else," he said.
Another goal of the token fund is to bring greater liquidity to the venture capital asset class - an area in which solid returns are often produced, but investors' funds can be tied up in ventures for as many as five to 10 years.
The token would allow owners to sell their ownership rights to the fund at any point in time, thus opening the door for experimentation with other traditionally illiquid asset classes such as real estate and private equity.
"We believe everything will become tokenized and liquid. We're doing this to actually show people how it's done," Pierce said, adding that the issuance of securities on the blockchain has the potential to become the first truly killer application for ethereum.
When asked about the potential monetary returns to Blockchain Capital for being the first to pioneer the practice, Pierce emphasized that the endeavor is more about advancing the ecosystem as a whole.
"It's got more potential to be detrimental to our business than positive. But we're doing it to practice what we preach," he said. "We think this is going to forever change the game. When it comes to disruption - everyone is going to be disrupted - the question is whether you're going to wait to be disrupted or are you going to disrupt yourself."
Correction: An earlier version of this article misstated the specific regulatory filings Blockchain Capital will pursue. This has been corrected.
Image Credit: Sebastiaan ter Burg