Q&A with Richard Johnson of Texture Capital

The private securities markets are a vital source of capital for both emerging growth companies and mature businesses. In fact, the US private markets are many times larger than the public markets. In 2017 for example, over $170bn was raised in private securities offerings for US operating companies. This contrasts with just $35bn raised in initial public offerings globally that same year. And yet virtually all of this capital markets activity is occurring without any of the technology or market infrastructure that underpins public markets. Securities are recorded in book entry form with ownership records stored in Excel spreadsheets or the filing cabinets at lawyers’ offices. Liquidity in the secondary market is severely restricted by the lack of transparency and the complex array of regulations that restrict the resale of these securities. While some trading does occur across a number of disparate private markets and specialist OTC desks, the trades are infrequent and characterized by high costs and wide spreads. At Texture Capital we see this as a tremendous opportunity to create a market structure from scratch, leveraging the most advanced and revolutionary technology available. Texture Capital will deploy blockchain technology to facilitate the issuance of digital securities – also known as security tokens – enabling increased transparency, auditability and accountability for investors, issuers and regulators. Smart contracts will programmatically enforce compliance with securities regulations, removing frictions leading to increased liquidity in the secondary market, and reducing the liquidity discount. With companies choosing to delay going public, private markets will continue to grow. Recognizing this, institutional investors are increasing allocation to private securities. A recent study by Blackrock showed that over two thirds of institutional investors in the US and Canada planned to decrease allocations to public equities while 53% planned to increase allocation to private equity markets. These competitive dynamics underscore how important it is to develop a robust market structure for the private markets. Blockchain technology and digital securities will be instrumental in transforming and modernizing these markets. The distributed ledger will create a much needed layer of transparency around securities ownership and transaction history, and provide for improved regulatory oversight, while ensuring a fair and orderly market that protects institutional and retail investors alike.

Texture Capital will serve both issuers and investors in private markets; and creating secondary market liquidity through blockchain technology is a key part of this strategy.

A recent study found that two thirds of institutional investors avoided private markets because of the lack of liquidity. And those that do participate must factor in this liquidity risk into their investment strategy - it is currently unlikely they will be able to exit their position before until an IPO or other liquidity event. Texture Capital's ATS will provide secondary market liquidity for private company securities enabling greater participation from institutional investors.

Companies issuing securities in private markets may often have to accept a ""Discount for Lack of Marketability"". This is well documented in academic research and is estimated to be between 11% and 45%. Issuers who work with Texture and enable their stock for secondary trading will be able to reduce this liquidity discount and achieve a greater valuation for their company. In addition, with a network of institutional investors on our platform, Texture Capital can streamline the capital raising process for issuers.

Texture Capital is an exciting investment opportunity for family offices because of our positioning at the forefront of the digital asset revolution. The total addressable market for digitization and tokenization of securities is massive. Our management team has significant experience experience applying modern technology to solve the financial market’s biggest problems. Upon regulatory approval, Texture Capital will be one of very few companies able to offer investment banking, advisory and trading services for digital assets.

Additionally, 76% of family offices make direct investments in private companies. Family offices will have an added benefit of working with Texture Capital, as we are are developing solutions that can directly benefit your investment strategies, including access to deals and secondary market liquidity.