Long before ICOs became standard parlance, Howard saw the future of Security Token Offerings. On his blog and also through guest articles as contributor to Forbes, Hacker Noon, The Mission and Next Web, Howard has shared his vision for the space and has worked to chart the path forward to liquidity.
AT: You have quite the impressive background, with an extensive history in software and gaming. Yet, you decided to launch an accelerator program called StartEngine. What inspired this?
HM: I felt the Los Angeles technology community needed an accelerator to invest in young companies. We were the first accelerator to launch in Los Angeles, many more followed. The mission was to help Los Angeles become a technology city.
AT: How long was it until StartEngine pivoted towards equity crowdfunding?
HM: We invested in 60 startups and most of them were not able to raise any capital. This was a huge problem. Investors were only interested in very narrow set of ideas and a certain type of founder. This resulted in most of our investments failing. This is viewed as normal given the early stage nature of the companies, however, access to capital was difficult for most of them, especially for the female led founders. In 2014, two years after launching the accelerator, we created the crowdfunding platform and launched in June 2015.
AT: Your first client on StartEngine Elio Motors went on to raise an impressive $16.9 million. How did you source this client?
HM: We were introduced to Paul Elio through a marketing company who felt they would be a perfect first customer for our company. Paul was adamant his community would invest and we were excited to have such an early success.
AT: When did StartEngine decide to also offer ICOs?
HM: In June 2017, I was reading about the DAO report published by SEC. This report explained how the DAO was an investment in securities although it was positioned as utility tokens. This intrigued me to learn more about ICOs and I found huge fast growing marketplace of investors who were using cryptocurrencies to crowdfund companies. There were two main differences from our marketplace: They were not following the securities laws and they offered many liquidation marketplaces for the investors. We decided to help ICOs get out of the shadows and use the JOBS ACT to sell securities within the securities rules. The first significant ICO we launched was tZero in February 2018.
AT: You were one of the first companies that pivoted from ICOs to STOs. What made you pivot toward STOs?
HM: ICOs were viewed by the general public as an investment in utility tokens. Although most of those tokens were securities, they were not sold as such. Changing the name to STO made sense because it was clear these offerings were for securities.
AT: We are huge fans of tZERO, how did you get tZERO on-board to raise on the StartEngine platform?
HM: When we launched our first summit on November 10 in 2017, we invited Ralph Diauto from tZero to come and speak. He saw our entire organization and how we were focused on compliance and following the rules. This was refreshing for him given the large number of platforms who were launching utility tokens by disregarding the laws.
AT: The StartEngine Summit has been quite successful. My only complaint is that it’s not long enough, any plans on making this a 2-day conference?
HM: We have completed three Summit so far and our next one is April 12th. I think a 2 day conference makes sense, however, it involves twice as many speakers and a lot more logistics. For now, we are expanding the 1 day conference and in collaboration with many other Los Angeles companies to offer an incredible LA Blockchain Week.
AT: You’ve spoken strongly in the past about supporting women entrepreneurs as traditional venture capitalists often do not provide them with the support and funding that they need. Do you feel that equity crowdfunding and STOs offer them more of a fair playing field?
HM: We have learned that under 4% of Venture Capital is invested in women led companies. This results in discouraging women to pursue their dreams and business aspirations. This bias contributes to the lack of diversification in the types of companies that are funded and also in the types of ideas available for investors. So far, StartEngine has women leading 22% of the companies on our crowdfunding platform. This is still low but a large step forward. We believe crowdfunding and STOs will help fund more women led companies than VC and Angels combined.
AT: I know you believe in mission statements, what’s the mission statement of Start Engine?
HM: Our mission is to help entrepreneurs achieve their dreams.
AT: StartEngine is currently running their own STO. Could you tell us about this STO, the raise amount, and the terms that are offered?
HM: We have a fundraising campaign for accredited investors called OWN Limited. This is limited to a short period of time before we have received qualification from the SEC for our next Regulation A+ public offering. The OWN Limited terms are $7.50 per token. Each token represents a share of Preferred stock in the company.
AT: Anything else that you would like to share about StartEngine?
HM: We are focused on building a modern financial firm which can help entrepreneurs capitalize their companies directly from the crowd. We also want to provide investors with liquidity options. We are in the process of registration with the SEC for our broker-dealer and Alternative Trading System. We recently launched a proposed standard called ERC-1450 to tokenize securities. The purpose is to offer investors the ability to receive digital stock certificates in the form of tokens and to then facilitate the trading on our upcoming platform.
AT: Thank you for the interview. We are huge fans of StartEngine and we were excited you were able to join us.
For anyone who wishes to learn more about StartEngine or Howard please see the links below:
StartEngine – Invest in companies via equity crowdfunding or STOs.
Howard’s Blog – Howard discusses his views on the industry.
Howard’s Twitter – One of the best Twitter accounts in the industry to follow.
Openfinance Seeks to Raise $50 Million
The popular security token exchange, Openfinance filed a Form D with the SEC this week. The company seeks to raise $50 million to further development of its secondary trading platform and security token ecosystem. The news demonstrates growing interests in the security token sector, specifically, exchanges that add liquidity to the market.
According to the SEC filing, Openfinance seeks to secure around $50 million to accomplish its new strategy. Interestingly, the company already raised $8.6 million successfully according to executives. Notably, this initial funding came from a variety of international investors. In total, 19 different investors participated in the first stage of the crowdfunding event so far.
The Openfinance exchange is no stranger to headlines. The platform became one of the first regulated security token exchanges in operation back in August 2018. Since that time, the platform continued to develop its tokenization capabilities. Recently, the company saw heavy coverage for its tokenization of the media firm, Current Media.
Openfinance is the dba of Decentralized Securities Depository, LLC. The firm provides a regulated secondary trading market for digital securities. As such, the platform has an alternative trading system (ATS) license. This license allows the platform to service both individual and institutional investors.
As part of Openfinance’s strategy, the firm partnered with some of the largest tokenization platforms in the market. According to executives, the company has strategic agreements in place with Securitize, Harbor, and Polymath.
In addition to its valuable partnerships, Openfinance opens and operates a licensed broker-dealer named Sageworks. The company also provides enterprise-level financial analysis and risk management software.
Liquidity is King
While the advantages of security tokens are immediately visible, there are still some concerns that the market lacks liquidity. Platforms such as Openfinance provide the additional liquidity needed to further the development of the sector. Both traditional and non-traditional markets benefit from this newfound liquidity.
For example, Openfinance provides investors with 24-hour trading. Comparingly, traditional securities investors must trade between the regular market hours of 9:30 am and 4:00 pm. While these investors can still match with buyers in the after-hours markets, the entire process is cluttered and leaves investors without many options. Tokenized securities are able to transfer and process at any time, including holidays.
Additionally, the platform’s tokenization capabilities allow for the creation of new market opportunities. For example, tokenization allows firms to add liquidity to traditionally nonliquidable assets such as debt-equity. Also, tokenization allows for more streamlined crowdfunding campaigns.
On top of the added features, the platform is available to both US and EU investors. Developers seek to expand the platform’s reach in the coming months. This strategy makes sense when you consider how the EU market continues to show strong security token development.
Openfinance – Moving Forward
It’s easy to see a scenario in which Openfinance becomes one of the most dominate exchanges globally. The firm provides smooth integration between brokers, custodians, transfer agents, and investors. As such, Openfinance plays a critical role in security token adoption.
WeOwn Goes Live with Project Crowd ETO
European investors got some surprising news this week as the AI-driven freelance platform, Project Crowd announced it had chosen WeOwn to host the firm’s upcoming equity token offering (ETO). The ETO will be among one of the first regulated offerings to occur in Europe. The news demonstrates growing blockchain integration in the EU financial markets.
WeOwn is a Liechtenstein-based blockchain crowdfunding platform. The company offers businesses some significant advantages over traditional alternatives. For one, businesses can launch new campaigns in 4 – 10 weeks. Also, there are no settlement delays, so businesses receive the highest level of liquidity available.
News of the strategic partnership first emerged on October 15. Importantly, this crowdfunding campaign will be the first ETO launched in the region. Additionally, it’s the first registered ETO WeOwn launched since the company’s inception. Together, these factors make the entire campaign an important milestone.
WeOwn CEO and Co-Founder, Sascha Ragtschaa spoke on the advantages STOs have over traditional crowdfunding strategies. He pointed out the small number (25) of successful IPOs launched on the London Stock Exchange this year. These failures included some high-profile companies such as rideshare firms Uber and Lyft.
Ragtschaa explained that these failures scared investors. This fear helped drive the growing private crowdfunding sector. WeOwn gives companies a cost-efficient alternative to the status quo. Compared to hosting an IPO, an STO provides firms with an easier to initiate and more transparent process.
Project Crowd is a freelance platform that leverages a variety of new technology to streamline the entire hiring process. For one, Project Crowd employs advanced AI algorithms to better match service providers with businesses.
Additionally, blockchain technology enables the platform to better monitor and record the abilities, tasks, and the experience level of each freelancer. This information is then looped back into the AI to continue to refine the systems hiring capabilities.
The freelancing market exploded over the last five years with platforms such as Upwork raking in huge profits from connecting employers with trained professionals. One recent study highlighted the astounding growth the community endured over the last few years. According to the report, the number of freelancers doubled since 2014 globally.
Project Crowd Chose WeOwn
Discussing the decision to go with WeOwn, Project Crowd CEO, Kathrin Hauk explained the motivation behind the move. Notably, both firms share a desire to integrate blockchain tech into the capital markets. Hauk called Project Crowd STO a “historic moment” for the entire industry.
Project Crowd ETO
The Project Crowd ETO is open to qualified EU investors currently. According to the firm’s documentation, 1 million shares equal a 7.25% equity stake in the company. Notably, each share costs 1 Swiss Franc and there is a 200 Swiss Franc minimum (USD 201). Additionally, investors will receive dividends periodically. Lastly, token holders have no voting rights.
The Future is Today
The Project Crowd platform has its sights on the multi-billion dollar freelance sector. If successful, the firm could become a major player in the market in the coming year. For now, developers seek to expand the platform’s capabilities and network in the coming months.
Smartlands Set for Expansion into U.S. with New Agreement
This move was undertaken, as Smartlands looks to expand their operations into other nations. By partnering with IIP Securities, Smartlands is now able to reap the benefits of their existing broker/dealer licensure. This means that Smartlands can now support U.S. based investors on their popular platform.
The company indicates that this is just a first step into their U.S. expansion, as they look to soon establish offices stateside.
Expansion into the United States is a big move. Already expressing a desire to expand globally, the U.S. represents a major milestone for Smartlands.
Beyond the agreement with a U.S. based broker/dealer discussed here today, Smartlands is looking to fuel their expansion by raising funds. We recently covered their decision to host an equity sale through conventional means in the following article.
Upon announcing this development, multiple representatives from Smartlands took the time to comment. The following is what each had to say on the matter.
Ilia Obraztsov, CEO of Smartlands, stated,
“Initially, the talks with IIP Securities revolved around our Joint Venture program…but eventually we have broadened the scope of the discussion and are now examining several options far beyond the broker-dealer licence agreement. Allowing US citizens to purchase securities issued on Smartlands compliantly has always been an essential part of our roadmap for global development, and we’re happy that this stage of our plan is now complete.”
Yaroslava Tkalich, CMO of Smartlands, stated,
“The agreement with IIP Securities would allow Smartlands to meet one of the company’s main challenges of broadening and diversifying the current investor base…We have already created a proprietary solution for fractional ownership of the real economy assets for most jurisdictions around the world. Today, working with a FINRA-licenced broker-dealer, we’re in a position to provide US investors with a huge array of brand new opportunities.”
As Smartlands continues moving towards their goals, the company has recently repositioned a couple of its most prominent employees.
This move saw previous CEO, Arnoldas Nauseda, transition to ‘Chairman of the Board’. The change was undertaken, as Arnoldas looks to contribute more towards company expansion and business development.
With this move, Smartlands CTO, Ilia Obraztsov, assumed the vacant role of CEO. In doing so, he is now the lead in Smartlands day-to-day operations.
Speaking with Arnoldas
While he still resided as CEO of Smartlands, we had the priviledge of interviewing Arnoldas. In this exclusive interview, we discuss not only Smartlands, but tokenisation at large.
Operating out of London, England, Smartlands is a tokenisation platform which was founded in 2017. The company operates under the watch of the Financial Conduct Authority.
CEO, Ilia Obraztsov, currently oversees company operations.
Operating out of New York, IIP Securities is a brokerage firm, which was founded in 2011. The company is registered as such with, both, the SEC and FINRA.
In Other News
With Smartlands targeting global expansion, it should come as no surprise that we have covered a variety of their moves over the past few months, as they work towards this goal. The following articles discuss, not only their plans moving forward, but an on-going project of theirs.
- Christian Platzer, Co-Founder & Managing Partner of Black Manta Capital – Interview Series
- The Managed Stablecoins are Securities Act of 2019 H.R. 5197
- Max Crowdfund STO Promises to Fuel Tokenization Revolution
- Securitize Increases Ties to Japan through First Acquisition
- The Future is Bright for Bison Trails as Series A Nets $25.5M