10 Things You Should Know About Blockchain Capital’s BCAP Security Token
December 19, 2018

10 Things You Should Know About Blockchain Capital’s BCAP Security Token

#1. What is Blockchain Capital?

Blockchain Capital is a Venture Capital firm focused on investments in blockchain-universe companies. Formed in the summer of 2013, the company was one of the first venture fund managers to integrate blockchain technology directly into its own operations, accepting Bitcoin for capital contributions and funding some companies directly in Bitcoin.

#2. What is the BCAP Token?

A Blockchain Capital Token (“BCAP Token”) is a new series of Ethereum-based smart contract digital tokens. Each token represents a fractional, non-voting economic interest in the Blockchain Capital III Digital Liquid Venture Fund (“BC III DLVF”), a venture capital fund investing in blockchain and cryptocurrency technology.

#3. What are the key details of the token offering?

Blockchain Capital held its BCAP offering in April 10, 2017. Initially, 10 million BCAP Tokens were offered at a price of $1 USD per token. Currencies accepted were BTC, ETH, and USD.

#4. Who are Blockchain Capital’s competitors?

As one of the first movers, Blockchain Capital’s BCAP Token currently operates in a relatively narrow field with limited competition. Within the tokenized Venture Capital space, one such competitor currently exists – SPiCE VC. Blockchain Capital benefits from a first mover advantage in a nascent market. As the industry grows and proofs of concept abound, we expect a number of competitors to rise.

There are projects on the horizon which could soon join the marketplace; two such are ICONOMI and Taas. Both projects are attempting to collateralize shares in a private equity fund. One important distinction, and the reason we have not grouped them with BCAP and SPiCE, is it remains unclear whether either of these projects issued security tokens. ICONOMI raised more than $10 million in their 2016 token sale to launch a platform for managing funds on a blockchain, with some of these funds designated for an actively managed investment fund focused exclusively on ICOs. The token sale was open to all investors, though recently they have clarified they are not offering ICONOMI services to US residents at this time. In their legal FAQ, they also express the viewpoint that ICONOMI does not fit within traditional regulatory frameworks, a significant departure from the Blockchain Capital perspective. Taas, a hedge-fund focused on trading cryptocurrencies, is also currently raising funds. Like ICONOMI, the legal status of their tokens is not clear.

It is important to note that whether companies can be considered competitors depends on the industry being observed. The above paragraph speaks specifically to companies leveraging blockchain technology and applying it to the Venture Capital process. If we observe either blockchain technology companies or Venture Capital companies as independent industry in which BCAP operates, there would be many competitors in both.

#5. What are the benefits of a tokenized venture capital fund?

Cryptocurrency and blockchain make it cost-effective to securitize common assets – to turn anything of real value into a marketable security by creating a digital unit of ownership known as a security token. BCAP tokens represents a clear proof of concept of bringing the potential benefits of blockchain technology to a variety of participants in the Venture Capital ecosystem. Venture Capital funds have historically been characterized by their notoriously illiquid nature. Investors in this asset class typically have long investment horizons and must wait many years before realizing a return on their investments. BCAP promises to reverse that long-standing practice. Tokenization of the underlying venture capital assets should lower the barrier to entry for investors, providing them with the opportunity to purchase fractional proportions of the portfolio of investments and sell those investments much faster than would typically be permissible given the previous structure. This increased liquidity allows more people to participate in this asset category by eliminating the need to lock up capital for the historical 5-10 year horizon.

#6. What is Blockchain Capital’s investment thesis?

Blockchain Capital’s investment focus narrows in on certain categories of companies within the blockchain ecosystem. Broadly, these categories are companies that are facilitating the growth of the Bitcoin ecosystem, companies that are providing blockchain-based technology solutions to financial institutions, and companies that are enabling non-financial institutions to leverage blockchain technology. At the highest level, Blockchain Capital is investing into the opportunity that Bitcoin and blockchain technology will disrupt legacy systems and create new markets.

#7. What is the difference between Reg D and Reg S offerings?

SEC Regulation D and Regulation S (“Reg D” and “Reg S”) are two exemptions that allow American companies to issue securities without registering them with the SEC. While both provide the benefit of exemption, there are a number of differentiating factors between the two, most of which involve characteristics of prospective investors. A company selling shares may claim a Reg D registration exemption, provided all investors are accredited investors. While there is no geographic limitation on investors under Reg D (investors can be from inside or outside the US), issuers must ensure that recipients of any advertisement or solicitation are accredited investors, under Rule 506(c).

Under Reg S, there is no accredited investor requirement, but all investments, solicitation activity, and advertisements must be from and to international investors. Interestingly, the status of “international investor” is more focused on geography than citizenship; an investor located within the US cannot participate in a Reg S offering, even if they are not a citizen of the country.

Blockchain Capital is unique in offering tokens they clearly qualify as being security tokens. Between Reg S and Reg D, Blockchain Capital issued its offering under the latter to ensure access to its core investor base within the US, while gaining all the benefits of exemption. As a Reg D offering, the BCAP offering was only open to accredited investors (745 participated, according to the company’s Form-D filing). To ensure compliance, any US residents who participated in the sale will have submitted documents to verify both their identity and their status as an accredited investor. Another characteristic of such offerings, and one required of BCAP subscribers, is that there is a one-year lock-up from the date of the close of the offering for the tokens sold.

#8. What are the risks involved?

As a token backed by a portfolio of investments, BCAP token holders uniquely face risks from both the Venture Capital side of the token, as well as the technology-specific side. As the BCAP token fundamentally reflects the performance of underlying portfolio companies, any adverse events for any of the portfolio companies would, in theory, reduce the NAV of the portfolio, which would translate at some level to a lower price per BCAP token. Said another way, the large portfolio of investments (51 at the time of publication of this report) decreases the effects on the overall portfolio by an individual company’s failure or success.

From a technology perspective, there is no assurance that a successful exchange will exist indefinitely which can support trading of the BCAP token. Should a successful exchange not emerge, the liquidity which served as a primary benefit for token holders would be significantly limited. Additionally, the volatility in the crypto markets could create significant fluctuations in the BCAP token that are not correlated with the NAV – this would decrease the value of the token as a tokenized VC fund.

#9. Please provide a brief overview of largest portfolio positions in Blockchain Capital’s fund.

While Blockchain Capital does not provide the weighting of specific holdings for the portfolio, it does provide a breakout of investments by category, with weightings by category. This breakout is provided in its quarterly NAV reports; Q3 2018 holdings broken out below.

#10. How has Blockchain Capital’s investments performed since the ICO?

Based on the Net Asset Value (“NAV”) reports published by Blockchain Capital, the portfolio of investments backing the BCAP token has appreciated in value by over 170% between the first reported date as of Q2 2017 and December 10, 2018. The quarterly NAV of the BCAP token is shown in the graph below – values have been published by Blockchain Capital via https://blockchainloop.com/.

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PLEASE READ THESE IMPORTANT LEGAL NOTICES AND DISCLOSURES

CONFLICTS: This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc. SP Investments Management is the investment manager of the SharesPost 100 Fund, a registered investment company, and other funds.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction. This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that such company has endorsed, supports, or otherwise participates with SharesPost. Company “thesis” is the opinion of SharesPost and is not a recommendation to buy, sell, or hold any security of such company.

Investors should be aware that the SharesPost 100 Fund (the “Fund”) may or may not have an ownership interest in any of the issuers that are discussed in the report at any given point in time. Accordingly, investors should not rely on the content of this report when deciding whether to buy, hold, or sell interests in the Fund. Instead, investors are encouraged to do their own independent research. Before investing in the Fund, investors are cautioned to consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the Fund, please visit www.sharespost100fund.com. Read the prospectus carefully before investing.

ANALYST CERTIFICATION: The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER: This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, SharesPost Index, SharesPost Investment Management, SharesPost 100 Fund, and SharesPost 100 List are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright © SharesPost, Inc. 2019. All rights reserved.