Why Asset Quality is More Important than Tokenization, and the Case for Why Tokenization is Becoming Normal, and More on Ep. 2 Recap with Ami Ben-David
On this episode of Security Tokens Uncensored (@SecTokenSummit), Alon speaks with SPiCE VC Co-founder, Ami Ben-David (@AmiBenDavid) about why when looking at tokenized assets such as tokenized funds, the quality of the asset is more important than the fact they are tokenized. They also talk about the transition of the industry towards institutional investors and how the ecosystem is going to evolve to support their needs.
You can listen to the entire conversation in Episode 2 of Security Tokens Uncensored right here, or you can get some nuggets of content by reading this recap. By the way, if you LOVE our content and the Security Tokens Uncensored podcast, please consider reviewing or subscribing to the show!
It’s all about the quality of the asset
You might remember learning about how Aristotle thought it was important to understand the virtue in the action behind what you’re doing. The philosopher considered the motive behind an action to be more important than the action itself. It turns out that the same philosophy applies to tokenized VC funds, too.
The fact that you’re tokenizing your asset isn’t more important than the quality of the asset itself, at least not anymore.
Alon said that companies and issuers are approaching it wrong because they’re leading with the fact that the asset is tokenized. This is backward. The investment opportunity has to be a good one. It has to stand alone.
“The tokenization and technology is an added value– at worst, just bells and whistles. At best, an opportunity to create liquidity in a deal that normally would not have that level of liquidity or granularity.”
Tokenization is Becoming More Acceptable
Ami Ben-David told Alon that part of the journey for Spice VC’s first closing was in understanding how tokenization is indeed important, but that the emphasis must be on the quality of the investment opportunity. Tokenization is a great benefit to issuers and investors, but it should not solely be the reason that you invest. Ben-David said that for the current closing the fund is working on, he’s answering mainly questions about what the portfolio actually looks like. Not that those questions weren’t around before, but the concept of tokenization was more novel in Q1 2018. Now the main discussion is around the focus of the fund in offering investors exposure to the fast-growing ecosystem enabling digital securities, and about SPiCE’s portfolio of companies in the space.
“This has been our journey,” Ami said. “Before our first closing in March in of 2018, we talked a lot more about the fact that the fund was tokenized. Now, it’s a way to show we understand the market we invest in. People coming for our second closing now hear more about what our portfolio looks like.”
Tokenized funds are starting to normalize. That’s what Ami Ben-David is doing– showing investors that Spice VC is a great VC fund, with a great vision and portfolio, which is also tokenized.
The mechanism for exits for SPiCE is also similar to conventional VC funds. “We return the money to the investors through an automatic buyback from all of the investors. For example, if you have 10% of the tokens in the fund, you will get 10% of the net revenues out of an exit. We lay this out in the memorandum. We almost try to make it as similar as possible to a regular VC fund in the way that we collect the money, return the money, and invest in the company,” Ben-David said.
The tokenization then adds a layer of tradability to the investment.
How will the security tokens ecosystem evolve?
In the second part of the session, Ami talks in great details about what the industry should do, and how the market should evolve in order to rapidly scale and reach the major assets and the significant capital managed by institutional investors, “If we want security tokens to be successful in the market, we need to create a situation where if somebody buys a security token, and I’m talking specifically about institutional investors… they can know for sure exactly what rights they have.” Ami describes the infrastructure for strengthening trust in the ecosystem, and why industry players including investment bankers might have an important role to play in it, as verifiers of the information provided by issuers about the assets in the real-world, and as distributors of digital securities to major securities investors.