Capital raises, initial coin offerings and token sales

Traditional corporate funding can be obtained through private markets or public offerings. The first is private placement, which is typically aimed at private equity funds, venture capital firms, hedge funds, family offices, and other institutional investors. These offerings are subject to the Securities Act under Regulation D.[1] A private placement requires less compliance and lower transaction costs than public offerings due to the need for registration exemptions and the fact that these securities are unlisted and therefore require less disclosure and compliance. Because these types of offerings are not reviewed and approved by the SEC, only “accredited investors” can purchase these types of securities to protect “retail investors.”[2] Private placements of securities continue to be a popular way of issuing securities. Well-known companies such as Facebook, Uber and Lyft use them, among other things, to raise large amounts of capital in the run-up to an IPO.

The issuer’s shares are sold to institutional and private investors on regulated stock exchanges as part of public offerings. Going public features more stringent speeds, procedures, and regulations, including mandatory filings with the SEC and publicly traded organizations (e.g., NYSE, NASDAQ, OTC, etc.).). The securities are auto-tradable and can be bought and sold on the secondary markets by any type of investor.[3] The process requires filing with the SEC and final approval.[4]

Recently, the Employment Act introduced an innovative funding option called Regulation A+.[5] Based on the crowdfunding concept, Regulation A+ allows companies to raise up to US$20 million (Tier 1 offering) or US$50 million (Tier 2 offering) through a “public offering” within 12 months, to buy shares and be exempt from the offer the S. and government bond registration requirements.[6] Before submitting the offering memorandum to the SEC, it is possible to “test the waters” in order to assess the marketability of the offering and gather potential interest from investors early on in the process. Regulation A+ benefits from a streamlined and expedited review process, where the issuer is required to make its offering memorandum public just 21 days before the SEC qualification and the beginning of the “roadshow.”[7]

Issuers of Tier 2 Regulation A+ have the option of requesting a listing on market exchanges such as the NYSE, NASDAQ, or OTC. If they are approved, they can de facto complete a “mini-Initial Public Offering (IPO),” therefore combining public funding (through Regulation A+) with a stock listing.[8]

Blockchain, Cryptocurrencies and Tokens
The innovation that was brought forward by the so called “fintech” and blockchain technology has led to the introduction of new and unconventional financial instruments.[9] Blockchain refers to a type of distributed ledger, which is a ledger of digital records or transactions that can be accessed by all computers using the same protocol on the same network. This has had an impact on the way securities are issued in the market and has the potential to fundamentally transform primary capital markets. Some observers even argue that blockchain technology is as revolutionary because of its application to financial markets as the invention of double-entry bookkeeping in 14th-century Italy.