JCO: Next Gen ICO for US Start-ups?
The Institute for Blockchain Innovation, a think tank bringing together “the world’s innovators in both the blockchain and crypto space” with “leaders from traditional-based financial systems, corporate, regulatory, entrepreneurial, academic and governmental backgrounds” has come up with a novel alternative to the ICO.
The North American body, which includes Indiegogo and Salesforce amongst its members, has developed a new method for companies to raise capital through digital tokens whilst ensuring they do not get on the wrong side of securities law.
Accommodating US Legislation
The JCO, or Jumpstart Crypto Offering, takes two pieces of recent legislation as a starting point for their model. First, the Jumpstart Our Business Startup (JOBS) Act of 2012 which is aimed at easing the securities regulation burden for small businesses, and secondly 2017’s Delaware Blockchain Initiative which allows corporate records to be placed on a blockchain to “better track and verify ownership, and improve transaction time and proxy voting.”
According to the IBI, this new model solves the “regulatory issues surrounding ICOs.” For companies wishing to pursue the JPO option, there will be three distinct phases.
First the company offers purchase agreements to accredited investors in a pre-sale. Then, once capital goals have been met, the company will submit documents to the SEC to offer digital securities under Reg A+ or by completing a registration document. In the final stage, the digital securities are then offered to both accredited and non-accredited investors and are free to be traded on SEC approved exchanges.
The crucial difference with the standard ICO model is that these equity tokens will “represent one share of stock in the company, and they are able to pay dividends,” thus creating “the market’s first equity-linked token that can be traded in cryptocurrency and is also backed by assets in a U.S. corporation.”
Whether this hybrid model will appeal to US companies remains to be seen. Most likely it will likely require a handful of start-ups to pursue this path to demonstrate the viability of the JCO as a capital-raising mechanism.