Tokenized equity and the evolution of ownership
Published BY DIANNA CHEN
Over the past year, the fever pitch surrounding utility tokens and their promise has waned. Today, the entrepreneurial ecosystem at large stands unknowingly at the brink of collective discovery, for the benefits of tokenized ownership are vast. Beyond an entirely fresh watershed of investment opportunity, tokenized ownership can enable decisive progress in areas previously considered exempt from disruption. Prevailing corporate ownership structures, closely tied to the anchoring influences of a myriad of historical, socio-political, and legal factors, are being challenged as the optimal model for doing business. And in this new light, interesting opportunity for advancement emerges.
IPOs are generally strategic. Companies go public in order to fund aggressive growth, pay off debt, and increase market visibility. During an IPO, ownership is dispersed amongst a wide set of entities who benefit from the mostly liquid nature of public equity. However, when it comes to the entire ecosystem of startups, pre-IPO companies, and private firms unwilling to go public, ownership is a much more burdensome business. Long-standing inefficiencies associated with ownership of private equity translate to trillions of captive dollars wiped out by the high cost of illiquidity, restrictive compliance, weak pricing mechanisms, and market depth suppressed by the impossibility of truly fractional ownership. What’s more, all of this friction means that capital raises are below potential, transferring much of the burden to startups and corporations. It’s important to note that the pain-points discussed are not a function of the private nature of startup equity, for example. Rather, these frictions arise directly from the outdated processes currently used to define, transfer, and record ownership.
Tokenization of real assets is the strongest solution to date for the challenges addressed above. Broadly, tokenization is the process of converting rights to some asset into a digital token which resides on-chain. Tokenizing equity enables it to be immediately transferable (within a permissioned network), inherently divisible, and indisputably accountable - all at near zero cost. Gone are brokers, and with them, their fees. Near-instant liquidity means that investors bear much less risk because they have greater control over their ability to realize returns, while companies themselves are able to raise more in the absence of illiquidity. Further, when assets are tokenized, compliance can be automated into the smart contracts which govern network dynamics, and non-existent intermediary fees empower the rise of fractional ownership. All of this is extremely beneficial for expanding investor access, increasing asset liquidity, and ultimately strengthening the financial leverage that companies command throughout the financing lifecycle.
It is increasingly evidence that the incentive to tokenize equity is tantalizing for both investors and ventures alike. The model of tokenization we’ve conceived at Consilience Ventures allows us to offer ventures a superior solution to raising capital - whilst giving investors access to the liquidity and diversification lacking in the traditional venture ecosystem. What’s more, the use of an equity-backed utility token means that we are able to design an ecosystem systematically engineered to ensure that venture incentives converge naturally with those of their advisers, investors, and other stakeholders critical to the acceleration process. By offering incisive solutions for improved outcomes throughout the life-cycle of venture growth, Consilience Ventures offers a platform that aims to set the standard for the future of venture financing.