In today’s edition, we’re briefing you on Arcton, a project tokenizing startup equity.
The platform allows onchain investors to capitalize on the margin between when a startup raises funding, and when they actually IPO. Opportunities that may have been mostly reserved for VCs may soon be available to DeFi users at large for select startups…
Stay alert, stay informed ⬇
Background on Arcton
Arcton primarily features Web2 start-ups on its platform, and each listed startup undergoes a meticulous due diligence process to ensure quality and viability. Below you can find what the IPO process is like:
1. Tokenization: Shares are legally tokenized under Swiss Law.
2. Public Offering: Arcton opens shares to the public, providing accessibility to a wide array of investors.
3. Investment: Shareholders acquire start-up shares using USDC or FIAT (CHF or EUR), facilitating seamless investment transactions.
4. Registry Entry: The newly minted shares are registered with the Commercial Registry following approval from a Swiss notary and the Commercial Register.
5. Liquidity Pool: Start-ups establish liquidity pools on Camelot, enhancing trading opportunities for shareholders.
6. Claim and Sell: Shareholders gain the ability to claim their shares and subsequently sell them in the secondary market whenever they want.
Arcton uses the Arbitrum blockchain to issue digital shares. The project has partnered with the Arbitrum-native Camelot DEX to allow for the trading of tokenized shares.
Arcton’s focus is on seed and series A rounds in Switzerland which usually command $1M+ valuations. The team emphasizes the importance of liquidity for both investors and founders, noting that blockchain can make real-world assets more liquid.
Camelot also focuses on sustainable, deep liquidity. This means startups raising smaller amounts (like $100,000) cannot generate sufficient liquidity.
The Case for Arcton
Arcton’s innovative platform offers an array of features that set it apart from conventional crowd-investing solutions. It empowers investors with continuous trading opportunities, liquidity through a secondary market, and flexibility in investment methods.
Buy & Sell Startup Shares 24/7
A Liquid Secondary Market
Invest Using Fiat or Stablecoin
Arcton belongs to the market sector of equity tokenization. Arcton’s approach involves transforming conventional startup equity into digital tokens, leveraging the security and efficiency provided by blockchain technology. This has the potential to bring deals to onchain users that traditionally would’ve mostly been available to VCs.
A decreasing number of IPOs over the past 20 years combined with a longer average time to IP may make startup investing more difficult
Arcton CEO Merens Derungs says that traditional investors don’t typically care about the medium of shares, whether paper or tokenized. Their primary concern is understanding the benefits for them. Now, with tokenization, investments can be smaller and shares are more liquid, effectively creating a stock exchange for startup investments.
This contrasts somewhat with how tokenized startup shares may be received by regulatory bodies. Arcton COO and Co-Founder Francesco Biviano says that the biggest challenge in tokenizing real-world assets from a legal framework perspective is the newness of the topic. People get afraid easily due to misunderstandings or lack of knowledge about tokenizing shares.
Francesco also believes that the future will see banks transitioning to blockchain infrastructure. He predicts that while banks will remain as brand guarantors and ensure the security of private keys, the actual transactions will happen on-chain without passing through traditional bank systems. He cites the rise of on-chain funds in Switzerland and the efforts of startups in digitizing funds as evidence of this trend.
Risks
While Arcton is committed to providing a secure and accessible platform for start-up investments, it’s important to acknowledge the potential risks and challenges associated with investing in this dynamic ecosystem.
Market Volatility: The value of tokenized shares can be subject to significant market volatility. Fluctuations in demand and supply can impact share prices, leading to potential investment losses.
Exit Strategies: Start-up shares’ exit strategies, including mergers, acquisitions, or public listings, might vary and can influence the timing and potential returns for investors.
Regulatory Changes: The regulatory environment for blockchain-based assets and tokenized shares is evolving. Changes in regulations could affect tokenization, trading, and investor rights.
KYC and Regulatory Compliance: Adhering to KYC and regulatory compliance is crucial. Failure to complete KYC or comply with regulations might lead to limitations in participation or fund withdrawals.
Third-Party Dependencies: Arcton’s operations involve collaboration with partners and third-party service providers. Dependence on external parties introduces operational risks.
Startup Risks: Investing in early-stage start-ups involves inherent risks. New businesses may face challenges in execution, competition, market adoption, and financial sustainability.
Dilution and Governance: Additional issuance of shares by start-ups may lead to dilution of existing shareholders’ ownership. Investors should consider the impact on their stake and voting rights.
Next Steps
Money Masters, an EdTech company based in Geneva, will hold their IPO on the Arcton platform.
There is a soft cap of $600,000 for Money Masters IPO on Arcton, and if it isn’t met, the money will be returned to investors. They have a hard cap of $1.2 million with a pre-money valuation of $5 million.
More startups will be introduced after the Money Masters IPO, with 5 other startups having planned their campaign with Arcton. The platform aims to offer startups IPOs from various industries. Arcton wishes to expand to greater Europe and eventually other markets, but regulatory issues are a challenge.
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