Digital securities are revolutionizing investing – and it’s going to be amazing!

There is a silent revolution happening today in the early-stage investment space. It’s a confluence of all the various technologies and investment methodologies of the past three decades, and yes, it is going to be amazing. What am I talking about? Digital securities, or as they have been previously called: security tokens (I will probably use these two terms interchangeably during this post).

Let’s start from the beginning. What is a digital security?

A digital security is essentially a blockchain-based representation of:

  • financial assets, such as stocks, bonds or some other types of monetary collateral
  • physical assets such as gold, real estate, or simple fiat money in the bank

This representation takes the form of a digital token, that is a set of numbers that securely symbolize a one-to-one relation with the underlying asset. I will not go into the whole concept of blockchain cryptography, but to make a long story short, using blockchain tokens for digital securities ensures that there can be only one copy of each token and that just one individual can own it at any given time. Using blockchain then ensures that fraudulent transactions (i.e., sending the same token to two different people) are near-impossible.

But what can you do with a digital security?

A digital security (token) is used therefore to represent ownership over some underlying asset. This means that if you hold the token then the underlying asset actually belongs to you. Much the same as any digital document, you can either keep the token to yourself or send it to someone else. However, since there can only be a single copy of the token at any point in time, sending it to someone else means that you are giving them ownership over the underlying asset.

This opens up a whole world of potential peer-to-peer trading possibilities that today are very difficult to perform. For example, if today I hold equity in a company, and I wish to sell it to someone else (provided this transaction meets all the regulatory restrictions), I will need to go through a process (the exact process is very much jurisdiction dependent) that usually involves some 3rd party mediation (e.g., a broker), and a slew of paperwork. With tokens, transferring ownership can be as easy as pressing a button on a mobile app.  

Why do we need blockchain for this?

Distributed ledger technology, a.k.a. blockchain, is the technology that makes all this possible. Before blockchain, the information about ownership of assets had to be held by some company, for example, a bank, and all transactions had to go through that company. This limited trading potential and usually helped that holding company make a lot of money. By using blockchain, we can remove the intermediaries and enable the owners of the tokens themselves to be in control of their assets.

Ok, I think I understand now. But why is this so revolutionary for investing?

Investing and blockchain have been getting a bad rap lately because of the many scandals and frauds related to initial coin offerings (ICOs). However, digital securities are a new way of merging the old (traditional investing techniques) with the new (blockchain tokens) to create new and incredible ways to invest in assets in general, and in companies in particular. To understand this, we need first to understand current investment methods.

Today, if you want to invest in a company that isn’t traded publicly, you generally have two ways:

  1. Invest directly, or as part of an investment group (e.g., crowdfunding, angel clubs) in exchange for equity
  2. Invest indirectly, for example, through a venture capital firm in exchange for some promised future returns

Once you have invested, you are generally locked-in with your investment for a long period of time, usually 8-10 years, before there is any type of “exit event”, such as an M&A or an IPO, and you can liquidate your investment. If in some point in the middle, you wish to sell off your investment, you will be met with bureaucratic obstacles and will probably need to discount the value of your shares on some secondary market. Selling off your investment in a company may also reflect badly on the company itself.

As someone who works mainly with early-stage startups, it is not uncommon for me to see a startup’s CEO having to spend valuable time helping early investors sell some of their equity to finance a son’s wedding, or for some other financial emergency.

With digital securities, all this can be a part of the past.

How? Digital securities enable the digitization of the investment itself. This means that the investor can receive a financial asset from the company (for example equity) in the form of a blockchain token. This token is essentially tradable from day one on security exchanges, which provide immediate liquidity to the investor.

Is this really such a big deal?

I think so. Let me tell you why.

Once investing through digital securities becomes more commonplace several things will make this market really stand out. Here are the key reasons that digital securities investing is a real breakthrough for investors:

  1. Liquidity – as I stated before, the main advantage that digital securities provide is the possibility of trading your tokens at any point in time. For early-stage investors, this means that they can invest in companies during their initial stage and sell off their investment (hopefully at a substantial profit) after a year or two and/or once that company hits a major milestone, instead of having to wait for an exit event. For later stage investors, this means that they can purchase investments in a company at any stage without having to commit to being part of a large investment round, thereby diversifying their investment portfolio
  2. Valuation – one of the main problems with early-stage companies is the ability to evaluate their worth. Many of these companies are losing money, and yet are worth many millions/billions of dollars. Today the only real way to get valuated is by having someone invest at that valuation (which is kind of reverse logic). The real result of this thinking is that venture-backed companies keep chasing investments just to increase their valuation for the earlier investors. Since digital securities are tradable on a securities exchange from day one, they are, for better or worse, valued by the market. This is the exact mechanism that works for the stock exchange and is dependent on the investor’s belief in the potential of the company as well as its ongoing performance
  3. Versatility – traditional investors put in capital and receive equity in trade. However, digital securities enable companies to compensate investors in additional ways, ways which may be more lucrative for the investor. For example, a real estate company can award investors in a commercial project with a share of all the rent generated by that project, or a services company can provide its investors (e.g., its token holders) with a lifetime discount on services. The only limit here is the imagination
  4. Transparency – one of the guiding principles of blockchain is its openness to everyone. An investment in a blockchain-based token is no different. A company issuing tokens for investors must provide full transparency to its operations (within commercial limitations) in much the same way that a public company must. This means periodical reports as well as connecting as much of the company’s financial activities to the blockchain itself
  5. Globalism – one of the main problems for investors is investing in opportunities outside of their own country. This is due to many reasons, but some of them can be easily addressed by digital securities, which enable easy cross-border transfer of value. This means that investors can easily invest outside of their country as well as trade in their investments internationally
  6. Compliance – each jurisdiction has its own rules and regulations regarding investments and keeping track of those rules is no small headache. Using blockchain-based smart contracts, the per-jurisdiction rules can be coded into the digital security itself which makes it self-compliant, i.e., no transaction that is not compliant can be performed on it. Headache – gone!
  7. Control – when investing in publicly traded companies the investment and exchange platform must be decided in advance and from that moment on the company is subject to its rules and whims. Does a company want to be traded on the NYSE? They must pay anywhere from $35,000 a year and more for the listing. Does an investor want to trade the NYSE issued stock? Just the list of fees is enough to make you rethink it. However, in digital securities, there is a complete separation between the tokenization platform (i.e., the company that will create the digital securities) and the trading platform (i.e., the digital securities exchange). This also means that digital securities can be traded on several exchanges simultaneously and that you can sell a digital security you purchased on one exchange to someone else on a different exchange. You control where and how much you are willing to pay for any trade
  8. Robots away – a major issue with today’s stock market is the manipulation by high-frequency trading algorithms. Blockchain-based exchanges make this essentially impossible. Initially due to the actual limitations on the number of transactions that a blockchain can perform every second (known as TPS – transactions per second), but once that is solved, these manipulations will be blocked by smart contracts that will be built directly into the token itself

So, as you can see, there are major advantages for investors in using digital securities as their investment vehicle.

For companies too, digital securities offer a great way of raising capital, for a specific project or for the company in general, but I think I will address this in a future blog entry.

One final point which must be stressed: be careful

The fact that digital securities are an amazing investment vehicle does not mean that it is without its risk, as any early-stage investment is. Digital securities are just the form of investment. And like with any investment, it is the job of the investors to do a thorough due diligence on their investment – make sure that the company is legit, the team is serious, the business model is sustainable, the strategy is viable, and the opportunity is as good as it seems.

In my next blog entry (which hopefully will not be a year from now) I will discuss how digital securities investments impact early-stage companies that are seeking funding.

So, you wanted to ICO?

This story was originally written when ICOs were at their APEX and every second entrepreneur I would talk to wanted my help in ICOing. Since then, things have gone south for the ICO industry. So many scammers and bad projects have sullied the waters of what might have been an amazing new industry. But, no worries, a new breed of block-chain based investments have since taken root — the regulated STO, which is a new way of fund-raising that combines the old (better due diligence, better investment stake in the company) with the new (digital assets, liquidity). So, if you are still interested, I suggest reading my blog post about STOs. Otherwise, if ICO (or IEO today) is still your cup of tea — read on.

2017 ended with a bang for startups raising capital using crypto assets. With over $4B raised in 2017 in ICOs every entrepreneur today wants to get in on the action. But what does it really mean to ICO and who is this good for? Before jumping on the ICO bandwagon, you will need to consider: is your venture right for an ICO?

In this article, I will try to show you how to answer this question.

Some Background first

Let’s start with the basics: An Initial Coin Offering (ICO), or a TGE (Token Generating Event) as it is known today, is a process by which a company issues a crypto asset (such as a crypto-coin) and offers individuals the opportunity to purchase those assets when they are first offered (hence “initial offering”). This is essentially a way to raise money for a future product (presell), service (utility), or some asset (security).

An ICO is not a single one-day event. It is an ongoing process that may take several months and is divided into several stages. While there is no official “rule-book” for what to do, several industry standards have been set, and most startups choose to follow these standards.

Is your venture right for an ICO?

Before rushing forward with an ICO, here are several questions to ask yourself to see if the ICO route is right for you and if you are the right company to succeed in an ICO.

Question #1: is blockchain an integral part of my solution?

Since we are about to generate a new coin (or token), the underlying assumption is that this coin is used on a blockchain which is a core component of your company’s product or service. However, in the rush to raise money in an ICO, many companies are artificially adding blockchain to their technology without any real reason or added advantage to them, their customers, or the market.

If you can take your solution and replace blockchain with any regular database and not lose any functionality, economic value, or unique advantage, then you are not using the blockchain properly.

Only use an ICO as a funding tool if your answer is: blockchain solves a real need and is properly used in my solution.  

Question #2: Is there an economic advantage to using a token/coin in my solution?

Generally speaking, there are two types of coins – security coins and utility coins. Security coins are generally a means of improving current securitization processes, and utility coins are about creating new economic value.

Therefore, you should really examine if there is logic in issuing a new coin? Are you able to create new value where there is none? Are you able to overcome limitations set by the current economy’s processes? If you can take your solution and replace any mention of your coin with a standard fiat Dollar, or a standard tracking ledger (even an Excel), then you have done nothing of real economic value and should not be creating a new coin.

Only use an ICO as a funding tool if your answer is: my new coin is creating new economic values (utility) or will fundamentally improve on today’s way of handling value (security)

Question #3: Am I in it for the long haul?

ICOs are a new way of funding, and they are changing the way companies operate not only in the short-term but also in the long-term. Essentially, since ICOs are a non-dilutive way of raising money, all the company equity remains in the hands of the founders. That sounds great, but this means that most of the value created by the company will actually be held by the user or investors in the form of the coin.

So here’s the problem -What happens in the case an M&A? to phrase this in startup speak – how can you plan an exit strategy? If before founders knew that at a certain stage they might have the option of selling their shares and exiting the company, it is not exactly clear what will happen with a company that has ICO’d. There are too many questions right now even to know if a company that is operating its own economy can really be purchased by another company and what that involves.

It stands to reason that these issues will be solved, but if you are planning on a quick exit using an ICO, think differently. As a coin holder, you may receive an influx of money, but as part of the company’s core team, you should know that you may be required to be part of the company for a long time.

Only use an ICO as a funding tool if your answer is: I am committed to this company and idea for the long-term.

Question #4: Do I have the team to execute this?

The amazing things about ICOs is that when they succeed the company receives an amazing influx of capital very fast, sometimes tens of millions (sometimes more). However, this means that with money in the bank, the company must execute on their promises very fast. For that, you need an ace team on board. You need to be a company that brings the product to market fast and markets it successfully with a development team that is able to scale fast while maintaining a great user experience.

In addition, since there are so many ICOs out there right now, one of the differentiating factors between all these companies is the strength of the team. If you, or your team, have the track record to show this is not your first rodeo then you will give your investor the confidence you will be able to execute (also the confidence this is not a scam).

Take into consideration that even before the ICO is launched, your team should include positions that are not found in the regular startups – a blockchain expert, a token-economics specialist, a marketing guru with ICO knowledge, a community manager. Find these people and get their help in launching the ICO.

Only use an ICO as a funding tool if your answer is: My team can execute and scale fast, it imbues anyone who hears about them with the confidence that this is the right team for the job, and I have the right people to launch a successful ICO.

Question #5: Do I have the budget?

Finally, do you have the budget to go through this process? This is the question that surprises many entrepreneurs who think that ICOs are an easy thing to execute. Here’s the thing – today there are about 150 new ICOs every week. This number will only grow as long as the regulation does not throttle the market. In order to succeed you need to main things – be prepared fast and stand out above the noise.

Be prepared fast – to launch your ICO you will need to have all your ducks in a row: legal, accounting, and business. Legal means having a top-tier law firm with ICO experience and knowledge consulting you and ensuring you do everything by the books and do not risk a regulatory backlash. Accounting means having an accounting team and a CFO who understand all the tax ramifications of raising money by ICO. Business means having all the answers to the blockchain and token economics as well as your go-to-market and expansion plans – this should be in the form of a white paper (or any other color paper) as well as a very detailed internal business plan and financial model.

Stand out above the noise – once everything is ready, you will go public. Now is the time to put all the efforts on marketing and PR. This means press releases, social network (Reddit, GitHub, facebook) activity, doing a roadshow, and all other actions necessary for ensuring people hear about you. Doing this alone is difficult, and you will probably need a specialized PR and marketing company to help you out.

The problem is that these things cost money. Especially the marketing. And if you don’t have the money to start this process or the means to raise it in pre-sale, you will have a hard time raising substantial funds in the actual ICO.

Only use an ICO as a funding tool if your answer is: I have, or can raise, at least $250,000 for the ICO process (note: frankly $1M-$2M is probably the right number)

To conclude

If you wish to ICO and your solution is blockchain-enabled and creates new economic value, and if you have the team, budget, and stamina for making your vision into a reality, then an ICO may be the right tool for you.

If you are still interested, then contact us today and we will help you ICO!

What is the difference between a business plan and a White Paper for an ICO?

Everybody’s talking about Initial Coin Offerings (ICOs) lately. If you’ve been sleeping in the past few months, ICOs are a way for a company to offer crypto-assets to the public in order to raise funding, and many startups have been doing just that to raise initial capital, often instead of raising angel or VC rounds (side note 1: that’s not exactly true, but that is an article for another day).

There are many different aspects to performing a successful ICO (see SirinLabs’ recent $157.8 million ICO), but I want to take a look at the core document that is provided for the company’s investors – the white paper.

What is an ICO white paper?

A white paper is a document that details all the relevant information for anyone who is interested in purchasing a crypto-asset. White papers have existed for ages, but until recently were used mainly to detail technical data and use case investigation for technological products.

Offering a crypto-asset white paper is a tradition that started with Satoshi Nakamoto’s nine-page white paper, which was a detailed support manifesto for the original bitcoin currency. Since then, any company that issues a new crypto-asset have pitched their new offering using a white paper.

(Side note 2: like any document, white papers can be professionally written, or can be a haberdashery of crypto-slang that was purchased on and is not worth the virtual paper it was published on. In this article I will only comment on the former version).

So, it’s a business plan?

Yes and no. There are many similarities between a white paper and a business plan. Mainly, they both need to convey the essence, plan, and uniqueness of the company to the reader. However, there are also many differences.

Ok, so how are white papers and business plans different?

Let’s start with the similarities. Both a business plan and a white paper must address five major aspects of the underlying business:

  • The need / problem – why does anyone need another crypto-asset. How will it solve an existing problem, or make our lives better?
  • The Solution – how are we solving this problem and why are we doing it with crypto-assets (or blockchain in general).
  • The Team – who are we, why are we uniquely qualified to do this?
  • The Market – who will be using our solution, how big is the market? How many users are there? How are they segmented?
  • The Competition – what other solutions may be solving the same problem? How are we doing it better?

However, even when the two are similar, the business plan and white paper actually address different aspects of the same coin (pun semi-intended). A business plan will focus on the company and how it creates value by addressing the need in a specific market. The white paper, on the other hand, must focus on the crypto-asset, and how it will create value which may not be directly linked to the issuing company. For example, in a white paper about a coin used for car sharing, the business plan will focus on the company providing the software to enable car sharing while the white paper will need to focus on the drivers and riders and their interaction using the crypto-asset.

This is also where the similarities end. In order to convince (e.g., put their mind at ease) investors and coin purchasers that the new crypto-asset offers an amazing investment opportunity, the white paper must address several other issues, including (and this is in no way a comprehensive list):


  • What is the platform the crypto-asset is using, and how is it using it? In the case of blockchain infrastructure this segment must be extremely detailed to convince readers why a new infrastructure is actually needed and how it will work better than existing infrastructure.
  • How are new crypto-assets issued (mined? minted? Pre-offering)?
  • How are the crypto-assets protected? What’s to prevent people from stealing/copying/duplicating crypto-assets?
  • How do the asset-holders hold, sell, buy, and transfer the crypto-asset?


  • What are the different use cases for the crypto-asset? How will they change and grow over time?
  • How does the crypto-asset interact with other existing businesses and crypto-assets?
  • Has the underlying product or service launched? If not, why not and when?
  • Who are the existing miners, node-operators, or stake-holders in the underlying blockchain? What is their incentive structure?


  • How many coins are there? How many are planned? What is the issuance model?
  • What are the blockchain economies here – what will create new value for the crypto-asset and how?
  • What is the ecosystem for users, merchants, and traders? How will it grow and expand? What is the company’s stake in making this happen?


  • What are the terms of the ICO? How much is pre-allocated to the team and what for?
  • What size of fund raise is needed to make this vision into a reality?
  • Who are the early investors and how much was pre-sold at what terms?
  • Are there any guarantee structures?

Wow, that’s a lot

Yes. And that is just the proverbial tip of the ice berg. Writing a good white paper is about providing information. The more information you have, the more the educated investor feels comfortable purchasing your crypto-asset.

However, just like a good business plan, a white paper should be readable, tell a store (albeit a more technical story), and highlight the company’s strengths and vision.


What can you do with all this information? First off, do not treat the writing of your white paper lightly. This is a serious endeavor. Do not think that by shelling out $100 on you will have a document that is sufficient to raise $10 million and above. Second, write your white paper (or have a professional write it for you), and make sure you are addressing all the key issues.





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