Raising Capital with Security Tokens
Raising capital with security tokens is a great and legal way of utilizing blockchain and tokenization for investors with a regulated digital security. Tokenizing values for equity, debt, and liquidity improves the environment in which the investment is made stored, improves the speed in which these financial activities can happen, and remove the opaqueness of investments.
Below are the brief backgrounds on the panelists that contributed to this talk:
Keith Meyer, Principal at Symphony Capital Group. Keith Meyer is a purposeful real estate investor who has participated in a diverse set of investment vehicles within the industry. Keith’s family has owned and significantly increased the worth of several large mobile home parks over the past 25 years, and he is especially adept at deriving value from affordable workforce housing projects. Keith has participated in commercial property syndications including retail and office space, and has invested on the debt side as well through hard money loans. Keith is a Certified Lean Six Sigma Black Belt excelling at implementing systems to manage complex projects. He has experience both at working effectively with brokers and at contacting commercial property owners directly, a tactic which has become increasingly important in the current real estate environment. Keith is an engineering graduate of the University of Michigan and currently resides in San Diego, and he has no plans to return to the Midwest though he does love the people, the food, and the availability of cash-flowing properties.
Darin Davis, Principal and Co-Founder of Presario Ventures. Darin Davis has over 16 years of real estate experience involving acquisition, development, management, and dispositions. In 2002, he founded his first with an initial emphasis on land entitlement, multi-tenant and Class B commercial retail centers. In 2009, Darin co-developed his first multifamily project in Austin, TX. Since then he and his business partners have focused their efforts on the multifamily sector primarily in the Texas marketplace. As a Sponsor and General Partner, he has directly participated in securing over $400,000,000 in debt and equity for acquisition and ground up construction. Darin is experienced in Public-Private Partnerships and HUD-insured loan products. He is an honored alumnus from the University of Oklahoma, and he and his family currently reside in the great state of Texas.
Alexander Rapatz, Co-Founder and Managing Partner of Black Manta Capital Partners. Alexander Rapatz is Co-Founder and Managing Partner of Black Manta Capital Partners (BMCP), a BaFin regulated and MiFID II compliant financial service institute for all technical, financial and legal aspects of Security Tokenization. Alexander is a legal and corporate finance expert, board member of the European Super Angels Club and lecturer at the Business Angel Institute. Furthermore, he is an independent expert for the Horizon Europe program of the European Commission and arbitrator at the Arbitration Court of the Vienna Chamber of Commerce.
Chris Lesak, CEO and Founder of Blackhawk Equity, LLC. Chris has managed real estate since 2000 and is a licensed Broker in Texas, become licensed in 2003. Chris has extensive knowledge and experience in residential and commercial acquisition, disposition and property management.
Ben Suttles, Partner at Disrupt Equity. Ben has been an entrepreneur for 15 years, first starting his career in IT sales and business development then onto management. His background in management and sales has helped him propel into commercial real estate, first starting in 2013. Over the last 7 years, he has been involved in the acquisition & asset management of ten multifamily properties, through partnerships and Disrupt Equity, totaling over $100MM in AUM and the purchase and sale of over 2,000 units.
Key takeaways: Security tokens under the compliance of the SEC are public offerings for tokenized equities, debts and asset backed securities. They are represented on a blockchain and sold on exchanges.
Security token offerings are more secure and less risky to an investor because of their regulation. The ability to store this information on the blockchain allows the implementation of smart contracts to trigger activities during each transaction, over a certain time frame, or however the contract is programmed.
As with all, the broader the market, the more risk averse the SEC will imagine the typical investor. Because tokenizing financial instruments utilizes the blockchain, fractionalization can occur. This is something that helps lower the barriers to entry and makes a more democratized state. These tokens are offered on crypto exchanges making the geographical barrier almost negligent because these can be accessed all over the world.
Since there are many ways digital tokens can be constructed, there are also many ways digital tokens can harness the value of certain investments, ie capital. There are utility tokens that represent an ability to function on the specific platform. The platform may mine or utilize the tokens to make the network operate. Ether, algo, BNB are examples. There are asset backed tokens which convey ownership in a real word asset. Smart contracts can enable the investor to have all the benefits associated with ownership because they are the owner of this token. Fund tokens can develop a marketplace for specific purpose. Equity tokens are huge in the realm of real estate. The concept of monetizing equity either for democratized ownership, or utilizing the percent of ownership for future transactions or leverage options.
The panel speaks about the ability to take out equity of a tokenized asset and still be able to drive. There are also debt tokens which can be used in a number of different ways, either as collateral, a debt obligation or to restructure debt. This is all possible without tokens, but using a digital security token creates these new avenues introduced to this industry by blockchain.
There isn’t much difference between an ICO and STO in terms of what the coin/token will represent. They can both be utility or asset back. The big differences we need to understand is the STOs have gone through the securities registration process and are subject to the same laws as other securities. This helps to protect investors and creates a new asset class with integrity and the ability to prevent fraud and deceit in the market place.
Secondary market exchange is legal if the token is a registered and compliant security according to the SEC, if the digital asset is considered a security. Some tokens will not be registered with the SEC and it does not make them illegal, it can be quite possible for these tokens to fit under certain regulation exemptions. Regulation D, S, A+, and CF are all exemptions the SEC has provided that no longer require the need for a public security token offering to be registered with the SEC. It is important you understand if an exempt token is still compliant under exemption laws.
Key references: Blockchain Real Estate Summit, STO law, ICO vs STO, Regulation D, Regulation S, Regulation A+, Regulation CF, Guide to Secondary Market Regulation
This article is brought to you by the Team at SafeREIX. SafeREIX is a community defi token that is built around the integration of real estate to the blockchain. As real estate professionals, we aim to reach those engaged with real estate or blockchain and get both parties to talk about what the separate industries can do together. We had a great time writing this article for you to read. We are so excited to keep bringing you articles just like this one. We think that writing articles of this nature will expand our reach through the foundation of community enrichment. Hope you enjoyed this article, and we will keep you updated when the next piece of content is ready for your engagement. Join us on our social networks to stay connected!
Speaker Socials: Darin Davis, Presario Ventures Twitter, Alexander Rapatz, Black Manta Capital Partners, Ben Suttles, Disrupt Equity LinkedIn
Author: Zach Cuellar (Website, Twitter)
Editor: Hunter Carter (Twitter)