Digital Securities: An Innovative Exit for Pre-IPO shareholders?

Mar 06, 2019

By: Mels Dees

Dusk Network is the first tech protocol specifically for securities.

Distributed Ledger Technology (DLT) has evolved to enable the nascent digital securities ecosystem. ‘Digital Securities’ is a collective name for electronically registered and transferable equity, debt, and assets, that are issued and/or traded using blockchain technology. There are two distinct classes:

  • Security Tokens are a digital asset that share some qualities with traditional securities
  • Tokenized Securities refers to a traditional asset wrapped in a new technology.

Simply said, Security Tokens were born on the blockchain, whereas tokenized securities already existed in the real world and are represented using blockchain technology (a token).

Key benefits of digitizing

The main reasons this new technology is being used is to digitize financial markets, creating new ways to raise funds or access liquidity. Other perks include; asset fractionalization (being able to trade a small fraction of a share), reduced managerial burden (automation of admin duties, lower ongoing cost), and access to new functionality that was previously difficult to implement (smart securities, voting).

The potential of DLT is unlocked differently for Security Tokens and Tokenized Securities. A working assumption is that issuers of Security Tokens benefit mostly from the new methods of fundraising, while issuers of Tokenized Securities benefit the most from the newfound access to secondary market liquidity.

The Pre-IPO Opportunity

Pre-IPO equity refers to shares of large corporations that have often performed multiple fundraising rounds already. Investors assume the company is on the verge of going public, which usually means a significant payday for early backers.

However, the promise of an IPO is being fulfilled less frequently and on longer timelines. Over the last 15 years we have seen a sharp decline in the number of companies that went public. However, these companies create immense value privately, with some of them valued at more than a billion dollar even pre-IPO. These companies are referred to as ‘unicorns’. Examples are; Uber, AirBNB, IndieGoGo, etc.

IPO’s happening less frequently and later.

So you own shares in an amazing company and are theoretically at a huge capital gain, however the company shows no sign of attempting an IPO anytime soon, and your assets are otherwise extremely illiquid. Maybe you can sell through a private equity broker, but this costs you a 2.5–15% spread, on top of the 20–40% liquidity premium already built in by the market.

It quickly becomes clear that Unicorns alone provide a huge amount of value that can be unlocked by offering a liquid secondary market. Not only would access to the asset be democratized, but investors would also be able to access the liquidity premium and cut out most of the brokerage costs they would incur in the current system.

So, how can we achieve this early exit?

One of Dusk Network’s focus assets are these aforementioned Unicorns. And with the advent of digital securities it is now possible to tokenize them and list them on new, regulated trading venues. Shareholders will be able to exit straight onto the secondary market and access IPO benefits immediately, whilst buyers can access unique shares and reap the rewards from dividends or a future liquidity event.

Examples of Unicorn companies.

We achieve this through a strong partnership network that specializes in digitizing unicorn shares. Through a combination of Special Purpose Vehicles (SPV’s), Exchange Traded Funds (ETF’s), and our own compliant STO protocol we will be bringing these unique assets to market this year.

- Unicorn shareholders can now sell faster, and for higher prices.

- Buyers can access new asset classes, without paying brokers.

Do you represent a PE fund, broker-dealer or investor in unicorn shares? Reach out to us and we will gladly talk you through the process of digitizing your securities on Dusk Network.

How to learn more about Dusk Network

Dusk’s technology disintermediates regulated (financial) markets. Our infrastructure tackles the challenge at the deepest layer. With Dusk you are in charge of your securities from start to finish. You can issue, register, and trade digital securities while complying with all regulatory requirements.


Digital Securities: An Innovative Exit for Pre-IPO shareholders? was originally published in Dusk Network on Medium, where people are continuing the conversation by highlighting and responding to this story.

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