In the most recent episode of Capital Ideas, David Duccini, CEO and founder of Silicon Prairie Online, shed light on how Silicon Prairie’s portal is leveraging blockchain-based solutions and an Alternative Trading System (ATS) to revolutionize the world of secondary sales in investment crowdfunding. David provided Capital Ideas co-hosts Nick Morgan and Dara Albright key takeaways, highlighting the transformative potential of blockchain technology and the challenges faced by Silicon Prairie in navigating regulatory barriers.
Duccini emphasized that blockchain-based implementation and distributed ledger technology hold the potential to revolutionize secondary sales. While primary raises are typically conducted in US Dollars, the use of blockchain technology in conjunction with a transfer agent and an ATS can create a decentralized platform. This technology offers instant transparency into the total number of shares issued, providing a level of transparency unparalleled by traditional Wall Street practices. With public keys identifying beneficial owners, transactions can be tracked in real-time, eliminating the need to wait weeks or months for official filings.
ATS Approval and Successes
Silicon Prairie recently received approval to operate an Alternative Trading System (ATS), a milestone that followed two years of persistence and negotiation with the SEC and FINRA. Duccini revealed that Silicon Prairie’s ATS engine was designed with the capability to support digital assets, accommodating various currencies, including those with differing decimal places. The platform is now in the process of onboarding its first Regulation Crowdfunding client, who has conducted previous raises and possesses a substantial shareholder base. This move towards facilitating secondary sales is expected to commence in the first quarter of the following year.
Regulatory Hurdles and Triumphs
Silicon Prairie’s journey was not without its share of regulatory challenges. Duccini recounted the initial struggle with Minnesota’s state-based exemption, which restricted their funding portal from charging success fees. To overcome this, they applied to become a state-based broker-dealer, a process fraught with denials and administrative processes. Eventually, they registered as a federal broker-dealer, enabling them to navigate this obstacle.
However, the most significant regulatory hurdle arose with FINRA. Duccini described a 23-month-long ordeal, during which they repeatedly butted heads with the organization. Threatening legal action and demanding access to crucial channels eventually spurred FINRA into action. They were able to proceed with their vision after significant intervention from legislative representatives and the SEC.
Looking Ahead: The Future of Investment Banking
David paints a vivid picture of the transformative potential of blockchain technology and ATS in the realm of secondary sales. The hurdles faced by Silicon Prairie serve as a testament to the need for continued regulatory evolution in the face of disruptive technologies. As the industry explores the possibility of new self-regulatory organizations, there is a growing sense of anticipation regarding the potential paradigm shift that could revolutionize crowdfund-based investment banking.
Silicon Prairie Capital Partners’ journey exemplifies the transformative power of blockchain technology and ATS in reshaping investment banking. The platform’s potential to bring instant transparency, facilitate secondary sales, and provide liquidity for investors marks a significant leap forward. The regulatory hurdles faced by the company underscore the need for continued dialogue and evolution in the regulatory landscape. As we look to the future, the potential for a new era in investment banking looms large, promising greater accessibility and transparency for investors worldwide.
Nick Morgan is President and Founder of ICAN, the Investor Choice Advocates Network, a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for everyday investors and entrepreneurs. He is also a partner in the Investigations and White Collar Defense Group at the law firm Paul Hastings. He previously served as Senior Trial Counsel in the SEC’s Enforcement Division.