Crypto IPOs and Why ‘Private Deals are Coming to the Masses’
Cointelegraph caught up with Mike Gropp from UK-based bitcoin trading platform BitBays to discuss its new cryptocurrency-powered “IPO” option for users
Cointelegraph caught up with Mike Gropp from UK-based bitcoin trading platform BitBays to discuss its new cryptocurrency-powered “IPO” option for users, the benefits of crypto crowdfunding and where he sees the industry headed.
The internet and digital money have enabled the rise of a completely new industry – online crowdfunding. But while this space has still plenty of room to grow, competition is becoming fierce as newcomers are vying for market share against current leaders (Kickstarter, Indiegogo). By offering their own unique approach to crowdfunding, these new startups are blurring the line between online crowdfunding and the world of finance, i.e. IPO.
“We see a huge shift in the global economy in the way people earn, spend, save, and invest,” Gropp told Cointelegraph. “Cryptocurrencies are removing the currency exchange and transfer obstacles faced by first generation crowdfunding platforms.”
Whereas before one needed to know a broker or a secret handshake to invest in a hot new company, Bitcoin is destroying barriers and empowering private individuals to take part in the increasingly-inclusive world of fintech and investment.
“Private deals are coming to the masses. Crowdfunding is the vehicle. Cryptocurrencies open the doors for more passengers.”
- Mike Gropp
Cointelegraph: What is BitBays and why was it started? Why did you register in the UK?
Mike Gropp: BitBays is a global bitcoin trading platform. We've been arbitraging since 2013 and opened our USD/BTC and RMB/BTC exchange in July 2014. Recently, we saw the need for a global IPO platform that eliminates borders and bureaucracy, opening up exciting, profitable SME investment opportunities to anyone with bitcoin. Thus, we launched our new IPO function. We registered in the UK because of the favorable legal and regulatory environment. This also helps us achieve our goal of being a truly distributed autonomous organization (DAO.)
CT: How does the ADO framework help you in your operations?
MG: The DAO structure helps us with one of our five main focuses of security: geographic. By allocating human capital and servers across different continents, we minimize the risk of regional events affecting our company. We've built our company on the same principals that undergird blockchain technology, one of those being “distributed.”
CT: Why did you decide to launch the IPO feature?
MG: At a basic level, we see a real market need and we have the resources to meet that need. At a deeper level, we see a huge shift in the global economy in the way people earn, spend, save, and invest. Two generations ago the mindset was to cut coupons and save money to have enough money to retire.
The previous generation thought going to school, working hard, and putting one's money in the hands of a broker to invest on their behalf would leave them with enough for retirement. Recently, popular wisdom says learn practical skills and start your own company. Many of these ventures will need growth capital. That's what we're here for. In summary, we see a growing pool of entrepreneurs and investors. We bring them together.
“We personally perform due diligence and vet projects, and companies must be profitable to qualify.”
CT: How does this platform compare to Bnktothefuture, for example, or other public equity raising platforms?
MG: There is a massive difference in our approach. First, we personally perform due diligence and vet projects, and companies must be profitable to qualify. We look at companies one at a time to offer a more customized, focused approach. This is a big difference with some platforms that feel like a craigslist for IPOs.
Second, our partner, BitCapital, purchases equity in the company which is held in partnership between BitBays and BitCapital. While we make no guarantees of company performance, we put our own capital on the line which communicates something to potential investors. Lastly, after the subscription period, shares can be bought or sold on our exchange, the price being determined by the market. Company performance, dividends, market conditions, etc. will all affect share price.
CT: Please walk us through this process. Do you take any fees?
MG: After the required due diligence and a public announcement, the companies stock will be listed on our exchange and open to subscription for a set period. OKDice, who recently listed on our exchange, had a 7 day subscription period. Their shares were fully subscribed in 72 hours. During this period, BitBays users can purchase shares at a set price. After the subscription period ends, stocks are free to trade, and the price is determined by the market.
Companies can list and investors can buy shares without any direct fees. We do charge trading fees to traders (0.1-0.25%) as they trade shares after the subscription period. Also, we purchase shares of the listing company at a discounted price. Withdrawing fiat currency also has a small fee. These are all the fees related to our IPO function, and they are quite reasonable.
CT: Does BitBays always buy a percentage of the equity offered and does the amount vary?
MG: To help companies IPO without any direct fees, and to publicly express our faith in the companies we permit to list on our exchange, we do take an equity interest in these companies. Yes, in the OKDice offering they offered 10% equity to the public and we agreed to purchase 30% of that offering (3% total equity stake).
Terms such as amount of equity and discount are discussed with companies on case by case basis since each company is unique. We believe it's good for BitBays and our users to invest some of our capital in companies we really believe in, as a small non-controlling interest.
CT: Is your platform compliant with equity raising regulations?
MG: Regulations vary by jurisdiction. Governments have seen the value of crowdfunding and other new forms of public equity raising. In response they have made some exceptions that allow the average investor to invest in private deals. One example is the JOBS act (Title III and IV,) which was a huge win for crowdfunding platforms. We are compliant within the major jurisdictions in which we operate, and are constantly keeping an eye on the ever changing regulatory environment.
CT: Are investors from BitBays and public investors offered the same opportunities or are there membership benefits?
MG: BitBays does purchase a set amount of shares at a small discount. However, shares purchased by BitBays and its users are identical when it comes to dividends, voting rights, etc. Anyone wishing to subscribe to companies listed on our exchange can register at BitBays.com.
“In the future, all major crowdfunding platforms will accept at least one major cryptocurrency.”
CT: Do you think non-crypto companies would be interested in using this platform to raise funds? What would motivate them to switch from traditional platforms or Kickstarter even?
MG: Most other platforms are limited by region. The benefit of crypto crowdfunding is the global reach. The drawback is cryptocurrencies aren't widely known or accepted, yet. In the future, all major crowdfunding platforms will accept at least one major cryptocurrency. We see the future, and are starting there. When other platforms catch up, we'll already be striding towards the next frontier to provide the most convenient and innovative funding solutions.
CT: As a whole, where do you see public crowdfunding in 5-10 years? How does the rise of cryptocurrencies and blockchain technology play into this?
MG: Crowdfunding is empowering average investors to make their own decisions among more options, with the lowest fees and the most transparency. Entrepreneur magazine claims crowdfunding added over 250,000 jobs and US$65 billion to the global economy in 2014. It's only going to grow and grow. Cryptocurrencies are removing the currency exchange and transfer obstacles faced by first generation crowdfunding platforms.
In summary, average investors are becoming more savvy. They realize they can no longer expect to win the money game by blindly chunking their hard earned money into the stock market, the housing market, or some other artificial low-interest induced equity bubble. Private deals are coming to the masses. Crowdfunding is the vehicle. Cryptocurrencies open the doors for more passengers.