Gegudingxin: from American history innovation equity securitization exploration

It is also to leather; Ding, also take new. Ding is the need to constantly experiment and innovation; innovation needs to go to the old year, put into practice. All we do explore the essence of innovation, not only is the pursuit of profit in the premise of risk, but also to let capital, talents and create the maximum energy release.

In the United States, Wall Street bear different missions in different historical periods. At the end of the war of independence in 1783, the federal government is facing the plight debt, 33 year old finance minister Hamilton proposed by the United States government credit guarantees, unified bonds to “trade” to a large number of “capital brokers” into the market as the government (the issuer) and the bridge between investors and brokers “capital” in the issuance, pricing and underwriting has played an important role.

 Gegudingxin: from American history innovation equity securitization exploration

The first U.S. Treasury Secretary Hamilton

Subsequently, the United States territory expanding territory, economic growth of traffic demand makes the construction of Railways and canals has become an urgent need, but no man has such a huge capital, therefore, the development of railway and other heavy industry companies need to face the public fund-raising, since then, IPO and joint-stock company boarded the stage of history, Carnegie Steel Corp was born such a giant. Financial capital is a powerful driving force for the real economy, the rapid completion of the process of industrialization and beyond in 1900 Britain became the first economic power.

The birth of the stock owners and operators of separation, but lack of legal supervision and self-discipline in the industry, railroad stocks become rich overnight tools. At that time, the U.S. produced hundreds of issued shares of the railway company, in late nineteenth Century, the railway market has become a wasteland. And J.P. Morgan changed the market chaotic situation, John Pierpont Morgan completed a series of corporate mergers and acquisitions at the entrance to Wall Street, the low efficiency of small companies into large companies, prompting New York central railway, Pennsylvania railway, Baltimore railway hub and regional composition across America railway network, the United States is rapidly becoming the world’s iron and steel industry leader.

 Gegudingxin: from American history innovation equity securitization exploration

John Pierpoint Morgan

However, at the end of nineteenth Century and early twentieth Century, financial giants monopoly enterprise financing, the issuance of securities brokerage, underwriting and mergers and acquisitions business. Due to the lack of supervision, commercial banks and investment banking operation, a large number of bank savings into the stock market. In 1929 after the outbreak of the economic crisis, the stock fell and bond defaults, greatly affect the safety of depositors’ funds, so the United States Congress has far-reaching impact on the “Glass – Steiger act” in June 1, 1933 (Glass-Steagall Act), the provisions of the commercial banks (savings and loans) and investment banks (underwriting and investment) the separation of business, investment banks no longer allowed to absorb public deposits.

 Gegudingxin: from American history innovation equity securitization exploration

In addition to the east of Wall Street, the western United States and one can not ignore the technological innovation heights – Silicon Valley. To promote scientific and technological innovation and capital market are inseparable.

 Gegudingxin: from American history innovation equity securitization exploration

Silicon Valley venture capitalists in order to get the pursuit of high returns in the secondary market exit of the hundreds of thousands of times, only willing to bear high risk of becoming entrepreneurs and angels for untested new concepts, new models, new technology of blood transfusion. Including.Com, the Internet “bubble” is not only a waste of social resources and financial speculation, but gave birth to the cradle of many technology giants and innovation paradigm.

 Gegudingxin: from American history innovation equity securitization exploration

The State Council Development Research Center, deputy director of the Institute of finance Chen Daofu suggested that the real economy in investment, production, distribution, consumption, savings “cycle. The monetary and financial systems through the monetary and financial exchange, barter, savings and investment, is mapped to the monetary and financial systems to achieve a reasonable match and reacts to the real economy. The real economic activity in real time will be connected and mapped to the digital space, more reliable records, connection and analysis.

The current financial technology is still in development, there has been a lot of financial innovation products, as the history of the federal debt, stock options, and railway technology enterprises housing prices of asset-backed securities, it is very difficult for us to summarize the technology and financial uncertainty connotation and extension of these new things.

 

The Financial Stability Board (FSB) will be defined as the science and technology financial innovation of financial technology, due to technological change and create new business models, processes and products, have a great impact on the financial markets to provide services and mode. The awareness of the more common is the technology innovation in financial technology is summarized as “ABCD” and four technical field. Among them, “A” refers to artificial intelligence, “B” refers to the block chain, “C” means “D” refers to cloud computing, big data.

 Gegudingxin: from American history innovation equity securitization exploration

With the continuous integration of financial and technology, a new form of universal financial service providers (through the secondary market of VC / PE / M / refinancing broker, trading, research data service providers, rating agencies, etc.) are emerging, these new concepts and new formats, caused a huge impact on the financial understanding and effective supervision.

Next, let us through the Vertalo technology startups could be the “Venture-funded the next big market for security token offering” a glimpse of the United States, the world’s by far the most mature field of venture capital market, the stock market in the early entrepreneurs, investors and early employees facing real pain points, so we analyze why the need for a new, improved model of early equity circulation.

The new financing mode of early corporate venture capital fund to support the branch

Author: Verloto

Translation: eight dimensional Research Institute

People always hope. A new company to obtain venture capital and private equity investment in Holdings Company, every year, however, according to the authoritative information platform “venture capital and private equity financing transactions each year, Pitchbook acquired startups rarely, listed companies less.

The worst is that most risk investment of technology startups had no chance of listing (IPO) or acquired by big companies. Adhere to many after B round of financing start-ups in the hellish predicament, occasionally raising to provide funds for the operation, or to reduce costs, in order to achieve profitability or improve the operating margin (operating margin), trying to attract strategic buyers or merger.

The global venture capital fund in support of the exit project number peaked at 2014 years, close to the level of 2015 years, and then decreased in the 2016 year, and in 2017 years once again dropped to about 1400. While 2018, through M&A (M & A) or IPO out of the project gradually decreasing trend is still continuing.

 Gegudingxin: from American history innovation equity securitization exploration

The company wants IPO need a longer time. According to the “Pitchbook”, in 2006 through the IPO exit average company takes 4.9 years. To 2016, the average time of IPO is 8.3. This means that early equity investors often need to wait 10 years to exit this long exit period than most fund duration.

Few companies can truly achieve the grand goal of IPO. After the peak of 200 in 2014 years the amount of new shares issued, the next few years, this figure has dropped to double-digit. In 2017, the annual listing of the company less than 100, and the venture capital company has completed 19000 transactions, invested $148 billion.

If more startups accept the risk investment, but fewer companies exit through mergers and acquisitions, and a few select exit through IPO takes longer, so for those who had forgotten technology company founders and early investors, what other exit choice?

The flow of the “third way” and the Vc firm a withdrawal form is ABS type certificate. With the acquisition of scarce, selling option is only limited to the higher valuation of the enterprise, the best way to get the most liquidity of venture capital fund and start-ups may be through the issuance of securities by card type.

Type certificate issued securities to comply with regulatory requirements, usually in exemption like Reg D, the basic assets (business revenues and IP) granted ownership of their buyers, like the traditional stock or debt transactions, only by the intelligence of contract management in the form of Token.

Why technology startups by VC investment will be applicable to securities passes the scene? Because through several rounds of financing start-ups have a quantifiable and comparable track record.

The risk of investment in the initial start-up financing after 5 or 7, its customers, income, and financial products can be used as the basis for the assessment of history, in other words, they have a fair market valuation (fair market valuation). After the C round of financing start-ups usually business has matured, the ongoing expansion, they have qualified team partners, and many investors, some of which took early shareholder is likely to want at this stage to sell its stake, after all they have very low cost. After several rounds of financing, technology start-ups have experienced the repeated survey and audit, and have the appropriate valuation. There are few other types of private enterprises have more than a complete melting C round or D round of technology companies easier valuation.

A major obstacle to obtain venture capital start-ups through securitization to solve the liquidity problem: valuation range (value range). Neither of them is so small, but the scale is not big enough to take the declaration and roadshow required complex bear IPO cost falls in this modest valuation range of startups tend to be very awkward. So, what kind of valuation range, is suitable for the issuance of securities on the card?

Can be through the securitization of start-ups (VC backed Startup) the valuation range is very broad. Most underestimate the value of about $100 million, this stage can be considered to be acquired to exit, while the upper limit is about $1 billion valuation, when the probability of exit channel will be listed on Wall Street. Between these two possible outcomes and two other options: a class of private placement (semi private offering), using SEC Reg D exemption from the rules, sold to qualified investors; the other is a kind of public offering (semi public offering), according to a recent JOBS Acts rules, the congregation raised by Reg A+ immunity, a year raising the ceiling is $50 million, but you can open the propaganda, can also be sold to qualified investors.

 Gegudingxin: from American history innovation equity securitization exploration

Why do I need to pass card of Vc firm of this new road? Because the technology and the founder of the early investors and early employees wearing gold handcuffs, handcuffs and these often hampered enterprises achieve their objectives. The United States tax law does not encourage the exercise of stock options (need to exercise the option according to the current valuation of the appreciation tax), but due to the limitation of the risk investment in private equity trading market in two is almost nonexistent, early employees Kechuang enterprises are facing several options: a) stay and hope that the company was sold, the stock option from b) and the confiscation of potentially valuable, or the most dangerous C) the exercise of stock options, and to rely on the company in one year and one day after the day he exercised the option to sell the stock of exactly the same.

The lack of VC in the two level of market sale equity held by the problem is not the same as. According to Pitch deck data, 2018 years two market sales of equity has increased. In the two level of market sale equity will produce many results, the most important thing is that they can help offset late start-up companies more accurate pricing of the equity. This is a secutity token function can be achieved.

Risk investment through securitization start-up companies, we have the opportunity to stimulate the vitality of capital and talent, to revive the ecosystem of technology entrepreneurship.

Has a perfect financial technology start-up companies (with reasonable valuation) has been mature, so they can try to open. The use of asset-backed securities through the card, tech start-ups can be founder, early investors and employees for the shares converted into token, and later sold investors, pension funds, corporate strategy or repurchase. If a company is open to the public to buy the shares, the board of directors can also choose at broker ATS (such as Sharespost) or tZero or OpenFinance so token form of issuing and trading transactions.

Why private technology companies, investors and directors will support such sales? Because of this reduced entrepreneurs operating pressure and promote growth will be a powerful incentive. Over the years has endured low founder to sell shares of liquidity and cash flow.

At the same time, this will also help the company to inspire new employees and new partners. By allowing early employees and investors to sell their equity holdings, the company can make room for new employees to provide blood, who can’t afford to replace the cash to buy shares of high taxes and wait for employees.

Not limited to the founders and early employees, through issuing permits, angel and seed investors can sell and transfer of shares, so people can announce the investment, the investment has been successful, and will release the funds to invest more to have ambitions and much-needed funds to other entrepreneurs.

Love may be the formation of non Western Europe (capital formation Nondilutive capital dilution) a revolution. But most love in Western Europe did not succeed in any real commercial interests.

While the securities assets based on real passes can release the potential wealth, the revitalization of the dying company, and makes the medium-sized Vc firm able to self reform and innovation, at the same time release and venture funds early entrepreneurs to fund new companies, solving new problems.

Postscript:

At present, data and technology companies in the business process, facing the inevitable and financial problem: when the boundaries of the enterprise business development to what level, they can be converted into a financial enterprise, what kind of behavior should be included in the financial regulation?

In fact, history is not static, the relationship between supervision and development, to a certain extent, with the same period of regulation and innovation.

 Gegudingxin: from American history innovation equity securitization exploration

The regulation should not only focus on the behavior, from the nature of the phenomenon, see the trend and context of industry development.

We must understand the Internet and the blockchain history and drive its development logic, otherwise, we will not only can not effectively monitor the internal risks, but also the loss of all the opportunities it brings, and at a disadvantage in international competition.

Basically, the financial supervision should be for the better development of the industry, and to achieve a smooth transition of innovation, balance the interests of all parties, maintaining the market order, and try not to inhibit the development of productive forces. Financial innovation and regulation should coexist in different levels, between the two should be the content and framework of the relationship between form and concept of the.

Review the history, each round of truly disruptive innovation are faced with many difficulties and challenge, we hope that through the concept and mode of the new study and dissemination of international scope, promote scientific and technological innovation, financial innovation and system innovation, the real power in the development of real economy.

Reference:

Tokenization Might Replace Securitization by Yaroslav Levishchev

Venture-funded technology startups by Vertalo

A new species of financial compliance and the future by Wei Ran

Metamorphosis, three hundred years of the Wall Street investment bank Li Mochou by Financial Street

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