Do-It-Yourself IPOs on a Blockchain

The global equity market has seen a very turbulent decade since the start of the global recession. Yet despite the relatively stable economic growth the world has seen over the past five years there has been a significant decline in the number of Initial Public Offerings[1] (IPOs), as well as a general lack of funding available to companies starting out. The market has been doing well, but new companies are not reaping the benefits.

This is despite the fact that there is a huge interest from the general public in investing. Apps like Robinhood have started to take the consumer market by storm, showing that young people have a genuine interest in investing to increase their wealth. This is backed up by the jaw-dropping interest in cryptocurrencies, with Bitcoin[2] reaching all-time highs as of late and articles about cryptocurrencies appearing in all major media outlets.

So if the public is interested and the economy is doing well, what is standing in the way of companies accessing funding? The simple answer is the outdated funding system that is in place. High fees for the bureaucracy of VCs, banks, and private investor firms makes the whole process intransparent, expensive, and cumbersome. As well as this, investors are wary of financial institutions since the global recession.

The global equity market seems to be at an impasse, with plenty of funding available and plenty of willing companies, but structural hindrances are making deal flow congested. As with many industries, equity markets are driving more towards decentralization, and decentralization is exactly what Blockchain technology is good for. So it is no surprise that a new startup is trying to make the equities industry more amenable to fund-raising an investing. Chainium[3] has been a work in progress for over two years.

Challenge: difficult to raise cash and difficult to invest

In many ways, the options for companies and investors are currently very limited; it is currently in a similar situation as the media industry was before the rise of freelancing sites like Elance or Upwork. There is no way to easily link up small private investors with growing companies, there is a lot of legal hurdles to running an IPO, and there are startup costs to be reckoned with. In this situation, it is completely unfeasible for peer-to-peer corporate financing for startups, so private equity firms, VCs, banks and IPOs on the stock market fill the void.

But as you can expect, these services come at a downside. The most notable is the cost involved where e.g. VCs charge a decent premium of the sale. The other downside is that a business has to pass the subjective judgement of the private investor in order to get access to cash. In an ideal world new companies would be able to go directly to their prospective end-investors with their value proposition.

Rendering middlemen obsolete

Chainium aims to make the process easier while also adding simplicity to the equation. Their main selling point is that they charge no fees but use Blockchain technology to handle the transparency of an equity sale. Their platform, underpinned by the CHX token, puts investors in direct contact with investors. As from that, the company summed up their killer advantage as:

“Business owners choose the terms on which they sell their equity and how actively they want to engage with their investors. A small family business could use Chainium to manage a simple private sale of an equity stake in order to ensure the sale is secure, legal and transparent. Alternatively, a larger firm could use Chainium to run a public equity offering and manage regulatory compliance, reporting, KYC/AML, investor communication, shareholder voting and all the other services required to manage a large investor base. Chainium removes the expensive intermediaries layer and enables access to equity fundraising directly from investors.”

Notably, the platform allows the same complete range of investor-company interaction that would be the case with traditional intermediaries, such as dividend issuance, shareholder voting, investor communications, financial reporting and analytics.

This is only possible with Blockchain technology since it offers a layer of distributed intermediate verifiability and guarantees that would be otherwise susceptible to fraud.

Simplicity in investing

The Chainium platform[4] has been in development for a couple of years and the company has a functional version on its website, which should provide confidence to investors. They are hoping that the upcoming ICO in early 2018 will put them in the spotlight and bring their solution to the attention of those interested in the future of investments.

Eoghan Gannon


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