The United States’ Securities Exchange Commission, the premier financial regulator in the country, gave approval to the Long-Term Stock Exchange (LTSE). The LTSE would be different from a typical stock exchange; the idea behind a long-term stock exchange is that the investors would be tied into the investment for a long haul just like in the crypto space. However, the companies would be able to raise money through all sorts of traditional ways, not only cryptocurrency tokens.
ICOs have always been criticized for the lack of regulation in the fund-raising process, and the STOs have also not fared any better. STOs are regulator compliant and have found their way into the mainstream as US-based firms are working on building infrastructure for startups to raise funding from investors through STOs. This makes STOs and LTSE direct competitors; however, one advantage that LTSE has is that it enjoys a more traditional approach to funding; thus, it will enjoy a lot more customer confidence.
Blockchain has disrupted a few industries in the short time that it has been around and one of the most significant change has been in the financial sector. The technology has enabled companies to raise capital from investors with even the most minute investment, through Initial Coin Offerings ICOs and Security Token Offerings STOs. This has been one of the major disruptions that blockchain has been the stimulus for.
Typically, startups raise money through Venture Capitalist firms that get them the capital they need to start their work; however, the community of investor in the Venture Capital arena is quite small, and thus not a lot of people get to invest in these up and coming startups.
LTSE is a platform for early-stage companies that have a sizeable business model and a long-term growth potential and can be the future funding platform for startups in the crypto industry.
Will LTSE Impact the Crypto Fund-Raising Market?
STOs have failed to live up to the expectations of the crypto community, and one reason may be that the STOs didn’t bring much to the table for investors to ditch the traditional model and invest in the market. The Canadian company tZERO in the Q4 of 2018, reported losses in excess of 12.5 million, proving due to the fact that the liquidity of security tokens had been low over the past year.
One downside of LTSE is that the companies and investors outside of the US may not be able to gain much from the exchange in the near future. These companies would settle need to rely on ICOs and STOs to raise funding as the listing requirements for companies outside the US would be almost impossible to cover. STOs will still be a viable option for companies outside of the US until exchanges on the same premise don’t start working in other regions.
LTSE is building its platform on a sophisticated traditional system; thus, it is handling the best of both worlds. The exchange would be a viable alternative for both blockchain related and non-blockchain companies. LTSE would be able to level the playing field for both types of companies, as companies would be able to solve the age-old problem of how to integrate the crypto sphere into the traditional markets.
The Problem with Traditional Funding Models:
LTSE is the brainchild of Eric Ries, an influential entrepreneur and author of the famous book “The Lean Startup.” In Eric’s view, LTSE is a platform that will shift the focus away from quarterly earnings reports to long term value creation giving small value-oriented companies a chance to thrive and innovate. Ries wants to empower these companies to create products that are helpful for society. While talking about the vision of LTSE, he said:
“For the next generation of what we like to call ‘modern companies’: What are their values? They want to be able to build an institution that can last; they’re not focused on trying to play the beat and raise game; they want to know who their long-term shareholders are?”
LTSE aims to help early-stage companies with sound business models and growth potential to go public earlier so the companies can get the funding they need. The idea is that if companies go public earlier, the small investors can benefit when the increase in value and the early investment sphere doesn’t remain dominated by institutional investors. In hindsight, LTSE is somewhat working on the same premise as ICOs were working on. Early Coinbase Investor Garry Tan, in one of his tweets pointed out the problem of how small investors can’t make the 10x and 100x initial investments.
Companies do go public later and that is a problem since only private investors have access to the 10X to 100X appreciation in sub-$B valuation high growth
— Garry() (@garrytan) March 19, 2019
Eric Ries believes that companies delay their IPOs due to the short term thinking of the markets. Recently Uber and Lyft IPOs are proof, both the companies had the finance to go public years ago; however, the market didn’t show them the response earlier.
Long Term for LTSE?
The company aims to list companies on its exchange and adopt such measures that create a long term thinking in both the investors and the companies. To do that the company has developed a vision for its listing standards. The company would encourage companies listed on their exchange to publish long term growth indicators in their quarterly predictions. The companies would also be advised to link executive pays and privileges with the yearly performance, as compared to short term achievements which have been a norm in traditional startups.
The companies would also be required to set up an oversight committee that would report the investors about the company’s direction moving forward and indicators about long term growth. One of the most exciting thing that the company is suggesting is to create a system in which voting rights would be given to investors if they commit to the company long term, this would shield the company from investor pressure in the short time. These rules are all present In existing exchanges like NYSE Nasdaq; however, these exchanges do not impose the long term restrictions on the companies.