Democratizing Startup Fundraising with TokenMarket

Asia Blockchain Review
July 18, 2019

In this interview, we welcome Mikko Ohtamaa, CTO of TokenMarket, Europe’s leading token investment platform on a mission to “tokenize the most exciting tech startups shares and place them on the blockchain.” Since the company was founded at the end of 2016, it has reportedly helped to raise £240 million (approx. US$298.68 million) for 30 startups, including utility token offerings such as Storj, Fetch.ai, Civic, Dent, and Crypto.com.

Ohtamaa discussed his start in the blockchain space, crypto policy in the United Kingdom, democratizing startup fundraising through tokenization, and much more.

Asia Blockchain Review: Let’s start with the beginning. How did you enter the blockchain and crypto industry? When did you see the potential for putting assets ‘on-chain’?

Mikko Ohtamaa: I started software developing back in 1999 with Nokia, working with the first internet-connected mobile phones and apps for them. Then in 2013, I moved to develop finance and blockchain solutions and worked as CTO at LocalBitcoins, the world’s largest OTC (over-the-counter) exchange. 

From there I moved to develop on Ethereum in 2016 when the first smart contract developing tools became available. Right then, I saw that it would be super beneficial to have real-world assets like company shares on a blockchain — we did not call them tokens at the time, but coloured coins. This would enable people to invest and earn interest and dividends easily, something you cannot do with current cryptocurrencies, where the only benefit you get is upside if the value goes up.

 

ABR: Speaking of tokens, congratulations on the FCA approving the STO launch! When did you start applying? And what preparations were made for this?

MO: TokenMarket has always had an overall aim: to tokenize the most exciting tech startups shares and place them on the blockchain. We started this journey in late 2017, but the STO side of things had not yet caught up until now for many reasons, and regulators were slightly hesitant about the overall process.

However, when the FCA announced it would be opening the Cohort 4 Sandbox, in 2018, TokenMarket was the first to apply. As we saw it, technology and legal understanding had finally arrived. We have now been in the sandbox process for a little over a year.

 

ABR: At present, digital securities are in the early stages of development in the world. What do you think is the biggest advantage of the UK’s policy for STOs, compared to Europe and the United States?

MO: TTokenMarket sees STOs as an effective instrument for crowdfunding. The UK has always been at the forefront of “investment crowdfunding, which equity crowdfunding is a part of.

Equity crowdfunding differs from a product kickstarter platform where one buys a pre-sale product. In equity crowdfunding, investors are able to buy company shares as an investment in order to make a profit.

The UK is championing this new type of crowdfunding with its policies and tax schemes that support investment in early-stage companies. The equity crowdfunding industry has matured and well-known platforms like Crowdcube and Seedrs have seen thousands of deals executed since the first rules for investment crowdfunding became effective in 2004. In the UK, investment crowdfunding surpassed venture capital investments in 2015.

 

ABR: As an enterprise which has received FCA approval to launch its own STO in a regulatory sandbox, what do you think your success has implications for other issuers?

MO: TWe have a strong pipeline of customers waiting to go live after the TokenMarket STO. Some of them have considered getting publicly listed, but they also see that the days of traditional exchanges are numbered.

When the investors see that digital assets work, there will be a massive rush to get there. Never before has there been a way to get global visibility and reach to expand your company investor base as there is with tokenized securities.

This will also be a game-changer for how investing itself works. Instead of professional investors, like venture capital funds, we will see a lot more of product consumer-investor hybrids. For example, I would personally be happy to invest in the top 20 apps I am using on my mobile phone because I love those apps and the companies behind them.

 

ABR: It was reported that TokenMarket has assisted over 30 of the most innovative blockchain companies in raising a combined £240 million, issuing digital tokens to over 250,000 investors. This is a very exciting number. What do you think is TokenMarket’s biggest advantage in helping companies raise capital?

MO: TWe have a proven working platform which is powered by our own technology. We have a 6-12 month lead on the next competitor. We also have an existing global investor base. Not only that, but we also have a well-known brand and a good reputation within the space. 

We understand the regulatory landscape and have engaged with regulators of different jurisdictions earlier than most, educating them about the benefits of tokenization and blockchain for non-payment use cases.

 

ABR: What difficulties do you think exist in startup capital raising? In the future, if TokenMarket helps a startup to issue an STO, can these difficulties be resolved?

MO: TCurrently, raising capital for an early-stage company is relationship-centric. It boils down to who you know, not what you know. The likelihood of getting money with good terms highly correlates with the network of people you have around you. Silicon Valley companies and investors have a huge advantage over everybody else because of this human-centric relationship.

We want to change this. We want to make early-stage capital raising more market based like it is for mature companies. Everyone should have democratic access to these deals. Investing should be a fluid process with a good user experience instead of faxing a pile of papers around, and you should be easily able to trade your positions in and out of companies. Our goal is to enable the best European and US companies to raise money easily and with the same terms.

None of this changes the fundamentals of investing or the return on investment, but makes the process around it much more efficient.

 

ABR: What is the number of investors on the TokenMarket platform? Are they interested in security tokens?

MO: TI would say there is keen interest. We currently have around 170,000 registered users, and there is a demand to know more, as our security token articles regularly get thousands of readers.

But recently, there has been a new audience outside of the everyday investors that TokenMarket users mostly consist of. Professional investors, who have more conservative investor profiles and skip cryptocurrencies, are now looking into tokenized deals. They see the benefit of wider reach, wider investor base, easier transactions, and efficient investor communications and management as benefits, even if they do not care about blockchain technology.

 

ABR: Now, many people think that shortage of liquidity is the big problem of the STO industry, As a well-known token investment platform in Europe, how will you address this problem?

MO: TFirst, we need to define liquidity. Is it a volume of one million dollars per day, hundreds of millions, or more? Based on this kind of criteria, there are very few truly liquid markets currently available, including forex, US treasury notes, and global S&P 500 stocks. For example, the London AIM and the NASDAQ First North companies barely see trading of any kind. The number of equity IPOs and people investing in stocks has been declining worldwide for some time.

We see STOs providing a partial response to this in the form of better access for investors. Because settling and clearing tokens between different blockchain systems and wallets is so easy, there are very few technical barriers to enter the trading market. There will be a renaissance in terms of trading and investing apps, just as we’ve seen within the payments and banking sector. Think WeChat Payments, but for investing.

Blockchain technology brings down the cost of running capital markets. Software development for marketplaces gets cheaper. Transfers and transactions get cheaper. Compliance gets cheaper. I believe we will see a time when there are zero transaction fees to buy and sell shares, and people will use company shares like money. 

Startups can easily pay their service providers and contractors using the stock as money, utilizing ICO-style “private money” deals. They will take this offer, as the risk premium of tokenized shares can be defined transparently through a smart contract, and thus, pricing the risk and liquidating this payment will be easy. Did you know that the part-time masseuse of the first Google office got paid in shares, and she later retired as a millionaire?

Cryptocurrencies have shown that liquid, 24/7, global markets can exist and thrive. Whether or not you think cryptos are a scam, they truly exemplify the kinds of direct exchanges and markets that did not previously exist. I can log in, complete exchange onboarding, and trade Bitcoin against other cryptocurrencies under 10 minutes, and it does not matter if the exchange is in Hong Kong or Brazil.

But will tokenized securities like Bitcoin? No. However, it will trade orders of magnitude more than the early-stage, high-tech company shares of today. TokenMarket is working towards a Multilateral Trading Facility (MTF) license in Europe and an Automated Market Institution (AMI) license in the Dubai International Financial Centre. Both of these licenses allow us to operate one of the first exchanges for tokenized securities.

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TokenMarket is currently participating in the FCA regulatory sandbox. For further information, visit www.fca.org.uk/firms/regulatory-sandbox

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