Private Equity

Tokenization

Tokenization in private equity is an innovation that utilizes blockchain technology to divide a financial asset into multiple digital units called tokens.

In few steps

Digitization of equities

The asset is technically digitalized on the blockchain. This process involves evaluating the asset, creating a smart contract to manage it, and determining the total number of tokens that will represent the asset.

The division into tokens

Once digitized, the asset is divided into tokens. Each token represents a fraction of the private equity asset. For example, if a private equity fund with a value of $100 million is tokenized, it could be divided into 100 million tokens, with each token representing 0.000001% of the fund.

Marketing the tokens

The tokens are then sold to investors. They can be bought and sold on blockchain trading platforms, allowing investors to trade fractions of the private equity fund in the same way they would buy and sell stocks.

Legal management

Token holders have rights to the private equity asset proportional to the number of tokens they hold. These rights can include a share of the profits generated by the asset, voting rights on decisions concerning the asset, etc.

Examples

Startups

A startup can raise funds by tokenizing a portion of its equity. This would allow a wider range of investors to acquire shares in the company, while also providing greater liquidity to existing investors.

Distressed companies

Distressed companies can tokenize a portion of their equity to quickly raise funds. This could help them avoid bankruptcy and give the company a new opportunity for success.

Social enterprises or non-profit organizations can tokenize a portion of their equity to raise funds while engaging their supporters. Token holders could receive non-financial benefits, such as free products or services, in addition to a share of the organization’s profits. This approach allows for a more inclusive and participatory form of fundraising, where supporters become active stakeholders in the social enterprise’s mission.

Off-market companies

A non-publicly traded company can tokenize a portion of its equity to enable its employees or other stakeholders to acquire ownership stakes in the company. This can serve as an incentive mechanism for employees or strengthen the ties between the company and its community.

Franchises

A franchise company could tokenize a portion of its business to allow its franchisees to own a share of the overall business. This could reinforce the franchisees’ commitment to the success of the business.

Main advantages

Increased Liquidity

Tokenization facilitates quick transactions and opens the market to more investors, thereby increasing liquidity.

Fractionalization

Tokenization makes private equity investing more accessible by allowing the purchase of small fractions of an asset.

Transparency and Security

Thanks to the blockchain, tokenization offers greater transparency of transactions and enhanced security.