Major crypto companies including Coinbase, Kraken and Shapeshift have been using a little-known investment platform called “Bnk to the Future” to raise hundreds of millions of dollars from investors—without having to limit themselves to the regulatory morass of the US market.
The platform, which counts Richard Branson among its early sponsors, has brought extraordinary dividends—to some. In total, the some 90 companies listed on the platform have collectively pulled in $781 million, according to the Bnk’s website. Looking through the funds generated by the firms using the platform, one can even get a glimpse of how these companies might one day be evaluated on the regular market—if it ever comes to that.
Crypto exchange Kraken, for instance, which began to sell shares on May 20 this year, with a minimum investment of $1,000, has already pulled in £10.8 million ($13.49 million), from 2201 investors, out of a speculative total of £12.4 million ($15.59 million). In 2017, 367 investors bought up £43 million ($53.71 million) worth of shares in Bitfinex; beating the goal of £40.1 million ($50.08 million). Then there was ShapeShift, another large exchange, which pocketed £8.2 million ($10.24 million) from a mere 39 investors, as part of its series A round in 2017, hitting its target squarely.
Below are several more (it wasn’t always clear how many investors pitched in or on which dates, and, confusingly, in some cases the total funds raised includes investors unrelated to the Bnk):
BitPay raised a modest £107,000 ($133,000), with a goal of the same, from one investor.
Bitcoin credit card company Wirex raised £130,000 ($162,000), with a goal of £250,000 ($312,000), from 88 investors.
Crypto gift card company BitRefill raised £1.6 million ($2 million), with a goal of around £700,000 ($874,000), from 134 investors.
Cross border payments startup Ripple raised £875,000 ($1.1 million), with a goal of the same, from 46 investors.
Crypto payments company Circle raised £723,000 ($903,000), with a goal of the same, from 57 investors.
Crypto investment platform Coinbase raised £441,000 ($550,000) from 56 investors.
Crypto investment platform Abra raised £9.6 million ($11.9 million), with a goal of £9.6 million, from 140 investors.
The way the platform works is unique, and elaborate. Bnk to the Future, which is registered in the Cayman Islands, acts as broker between investor and investee. But the investors don’t buy into the companies themselves—rather, the Bnk sets up highly specialized, narrowly focused “special purpose vehicles,” or SPVs, which stand as surrogates for and sell equity on behalf of the companies they represent. Investors can buy shares in these vehicles, with the Bnk handling the raises themselves.
SPVs are registered offshore, also in the Cayman Islands, which shields the firms from regulatory constraints faced elsewhere. Though any investor in an SPV must comply with the investment laws of his own country—US-based investors will still have to be accredited, for instance—outsourcing fundraising to an offshore company opens the scope of the raise to a global market. Funds are even raised in multiple currencies, according to one person familiar with how the system works.
According to Bnk to the Future CEO Simon Dixon, the Bnk then makes money by functioning as a typical broker, taking five percent of investors’ dividends and exit proceeds, and another five percent of funds “raised to the issuing company.”
The majority seem satisfied with Bnk to the Future’s services. Sergej Kotliar, a spokesman at Bitrefill, extolled the platform in the same way one would an ICO—it lets the rabble invest. “We have many thousands of customers and superfans all over the world that appreciate what we do,” he said. “BTTF lets them invest in the round while removing the administrative burden that many small checks would have caused otherwise.”
Having users as investors, he added, brings an immediacy and understanding of the product that venture capitalists are sorely lacking. “They likely appreciate the value that we bring more than someone who just heard our pitch,” he said.
Others have fared worse, however. A source at a company that managed to raise a whopping $0 told Decrypt that he had expected a “deep pool” of investors to turn up, based on previously successful sales touted by the platform, but was disappointed. He adds, however, that, “whatever challenges we had fundraising were not limited to Bnk to the Future. Fundraising was never easy.”
On the investor side, investing with the Bnk comes with its own risks. SPVs allow financial controllers to “mask crucial information from investors who may not be aware of a company’s complete financial situation,” according to Investopedia, which noted that the notorious energy company Enron misused an SPV to catastrophic effect.
And despite its mantra of inclusivity, the Bnk’s compliance with regulation inevitably narrows the pool of possible investors. Though many of the offerings are advertised as serving a hitherto unqualified demographic—Kraken pitched its $1,000 offering as a rare bargain—accredited investment restrictions apply depending on where the investors are based. A US-based investor, for instance, would need a net worth exceeding £1 million, or an income exceeding $200,000, to buy into Kraken’s sale. Bitrefill, meanwhile, excluded US investors outright—“that required a special contract with a US broker dealer,” said Kotliar.
Still, with $781 million raised so far, companies unwilling to risk the US regulatory waters are laughing their way to the Bnk.