Guest post by Giuseppe Solinas, Chief Editor of Elpis Investments, The first AI Crypto-Assets Investment
The outburst of ICOs that has recently flooded the financial landscape, has raised many eyebrows. And rightfully so at times: in the mix we are observing many exploitative and purely speculative attempts at raising funds for projects with no future, that represent only badly assembled attempts, if not scams at all, to raise funds without clarifying objectives, plans, sustainability of the projects. This ICOs are muddying pools at the expenses of investors, or with the complacency of speculators attracted to the possibility of quick, lucrative returns.
In the hands of a FinTech startup an ICO can be a new instrument to fund a project from its early stages, involving the investors in a crowdsale. Such an ICO is not a given, already regulated and established instrument to which the company’s business model has to, and can, adapt. An ICO is quite the opposite: a startup has to choose if launching an ICO is a viable funding method fitting the nature of the project itself.
Consequently, the questions arisen start shifting, toward more organic and comprehensive issues. Starting with what represents an apparently simple evaluation, but that is instead fundamental for both the startup companies and the potential investors. Are those startup’s core businesses, the technologies they are using and developing and the overall services they are committing to offer, just fitting a funding round through an ICO?
The answer here is of the utmost importance. We can easily state that it is not always the case: ICOs are not for every kind of business and they should be carefully evaluated, first and foremost, by this very basic standpoint: an ICO has to be consistent with the company’s project. Otherwise, as we are observing on a daily basis, they become, at best, a solely speculative way to operate from startups that are not here to stay.
A more virtuous approach does nonetheless exist. And it is the one undertaken by those FinTech startups that not only have a solid business model to offer, but have also a broader vision involving both the current financial landscape and its possible future developments. Rather: this is the approach of startups that are attempting to shape a new financial landscape, starting right from the funding model they are choosing.
For this kind of startups, an ICO represents a unique opportunity to be innovative from the very beginning, using a new fundraising instrument such as the Initial Coin Offering. One that can be and should be shaped consistently with their very core businesses and, because of that, a fundraising system that can be effective in helping them gathering the means to bring their projects to life.
ICOs have the chance to challenge the well-established funding methods only if they are consistent with the company’s project, its fundamental features and objectives. Only then, an ICO can be “used” to build a company. Only then a startup can ask the investors to believe in its project.
This brings us to another important question: what does it mean for an ICO to be consistent with a startup’s project? Let’s delve here, to better understand ICOs as innovative fundraising instruments, into the recently launched Elpis Crypto-Equity ICO fundraising.
As a startup company that has just launched an ICO, our answer is: yes, the ICO represents for us at Elpis a consistent funding instrument, innovative and effective. When we at Elpis thought about a Crypto-Equity ICO as a viable method to bring funds to our project, we had to identify and define the features to make our ICO consistent with our core business, and to bypass some of the many criticalities and issues that have emerged in the ICOs recent history.
Elpis is offering a “token” backed by company’s equity: we will be able to offer the investors a direct interest in our company, creating value and increasing the value of the coin itself. The ICO thus is not simply and yet another way to fund the project, but it involves and contributes in defining our business model as well.
We are offering the investors an opportunity different from the greatest majority of other ICOs: to invest directly in the company through “tokens” that are equities digitally represented on a distributed ledger. By means of a Board of Directors (BoD) agreement, enabled by the Ethereum smart contract technology, the company agrees to emit tokens backed up by an established amount of shares, that are offered to the market and the investors transparently.
Transparency and clearly-defined procedures are key to differentiate a sustainable ICO, fair for all the parties involved both the company and the investors. The lack of transparency is one of the most critical ICOs’ issues, but again: ICOs are relatively new instruments and their use has to be shaped along the way. Only scammers and speculators don’t take into consideration the transparency of the offers to the investors and the effectiveness of the proposed agreements, as they don’t need them.
Innovative startups like Elpis, with a solid business model, a vision and values like fairness and transparency at the very core of their strategies, on the other hand, are pushing on transparency as one of the keys to create and consolidate a sustainable and trustworthy market. Not only able to compete with the traditional one, but also, in the long run, capable of revolutionising for good the whole investing and financial worlds.
As pointed out by Smith + Crown: “ICOs are a mix between a donation and an investment. Owing to a number of scams in the industry, the community has adopted self-governing best practices and principles with respect to ICOs.” Like in the case of Elpis Crypto Equity ICO: the tokens are baked with a real and accountable value, that could be exchanged in the future for real equity, depending on shareholder eligibility (such as in an IPO).
The nature of the token offered to the market and the investors during the ICO fundraising phase, represents another critical decision for the issuing company. Elpis token itself does not on its own fail the Howey and Reeves tests, since it does not implies voting rights, claim to asset and claim to revenue.
We can argue that a token holder can redeem shares on the basis of the agreement terms. If the token holder should then pass “shareholder” criteria of local jurisdiction, before holding shares, he would be subject to security law. The “redemption” of the tokens (when shares are not yet in existence at company house) can one day be possibly classified as a regulated activity, even if this is not the case at the moment. But, it is impossible right now to exclude this possibility. However, even a “utility” token poses some risks of being regulated either as money, cryptocurrency, and even as a security because of the underlying intention of “investing.”
What sets Crypto Equity apart in general, and Elpis’ model in particular, from the vast majority of other ICOs, lies in the fact that there are real market fundamentals behind the token itself: the investors have the chance to invest in the team, in the potential of Elpis’ product and the market. With the token price following the share price (where the token is emitted and share does not circulate), it should, in theory, reflect that value.
It can certainly be argued that a token defied as such, is close to a derivative, but the underlying still does not exist. In any case, due to these multiple possibilities still only potential, it seems not only safe, but extremely important here for the transparency of the ICO’s offer, to treat the token as a security, and therefore KYC and AML requirements should be in place: Elpis has already adopted this practices, another way to make our ICO both effective for us and safe and transparent for the investors.
Summarising: Elpis “tokens” will be backed up by a decided upon amount of shares. The process will be transparent as our partner CapchainX will handle the destruction of the tokens and the exchange with company’s shares on request of the investors, ensuring the BoD agreement effectiveness, proceeding with the token emission, overseeing and guaranteeing the safety and real-time effectiveness of the overall process.
Consistency with the business model, the technologies used and developed, the vision, the values and strategies: this are the key steps to shape ICOs as innovative and effective funding instruments for FinTech startup companies. Transparency and self-governing best practices are the other pillars that have to be implemented to create, first and foremost, clear and more fair relationships with the investors. Because we need to offer them the opportunity to evaluate and make informed decisions when they have to choose if give us their trust, starting from the very beginning.
If you want to join the investing revolution, check our Crypto-equity ICO Fundraising at www.elpisinvestments.com, to know more about Elpis ICO and the discounted pre-sale that has started on November 1, 2017.
Chief Editor of Elpis Investments, The first AI Crypto-Assets Investment Fund: www.elpisinvestments.com, [email protected]