Cryptocurrency startup Swarm has an ambitious plan to democratize venture capital, and it has today taken a major step toward that goal by listing tokens that allow investors to purchase fractional shares in privately-owned fintech darling Robinhood.
No, Robinhood, a wildly-popular commission-free stock trading app that recently earned a $5.6 billion valuation, isn’t holding a security token offering (STO), nor has it even announced plans to make its shares available to the general public through a traditional public listing.
Those hurdles, however, did not prevent Swarm from finding a way to bring Robinhood shares to the public anyway.
Here’s how it works. Through partnerships with brokers and syndicate managers, Swarm has sourced equity from former Robinhood employees looking to cash out before the firm’s eventual IPO. That equity is held by what is essentially a shell company, whose shares are then listed on the Swarm platform as SRC-20 tokens.
All of this, Swarm says, can be accomplished without Robinhood’s permission — much less its willing participation. In fact, when the crypto startup first announced in June that it planned to turn Robinhood shares into cryptocurrency tokens, a Robinhood spokesperson told CCN that the firm was not even aware of Swarm. When reached for comment today, the firm provided the same statement and said that it had no further comment.
In any case, these tokens are now live on the Swarm platform, with a hard cap of $1 million in contributions.
“Secondary equities transactions and refinancing of legal entities which hold private company equity are not new in the United States. What’s new here is the tokenization of these assets, and the doors opened by this innovation,” said Philipp Pieper, CEO of Swarm Fund, in a statement.
“One of the key innovations of tokenization is that token owners can participate in the value creation of the very network they are part of. Swarm is bringing this paradigm shift to companies that are key players within this movement, but have yet to permit the network to participate.”
At present, though, that democratization of VC can only go so far. Due to regulatory concerns, Swarm tokens are restricted to accredited investors, who must demonstrate that they have a net worth of at least $1 million or an income above $200,000 ($300,000 combined if married) in each of the past two years and expect to meet that threshold in the present year as well. The firm has said that it hopes it will be able to make its products available to retail investors at some point in the future.
As CCN reported, Swarm has also announced plans to tokenize equity in other privately-owned tech companies such as Coinbase, Ripple, and Didi, though their shares have not been listed on the firm’s platform. Coinbase allegedly sent Swarm a cease-and-desist letter, but a Swarm spokesperson told CCN at the time that the company was confident that it would be able to proceed with its plans.
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Last modified: May 20, 2020 6:07 PM