The following is a guest post op-ed submitted by ICOBox
IPOs have long represented the pinnacle of corporate fundraising. The big payday. The make-or-break moment. Companies can raise billions overnight, giving them unprecedented opportunity and access to the world stage, the funds to make their lofty vision a reality, but that all comes at a cost.
Before going public, companies are largely beholden to their customers, employees, and a select group of private investors. At this stage, providing the best possible product or experience is paramount. After an IPO, a new party is introduced: the shareholder, who can be a tough crowd to please.
Stock valuation becomes king after going public. Keeping shareholders happy means providing great returns on their investment. Unfortunately, this sometimes comes at the cost of customers, the environment, and well-being of the economy, as companies strive to maximize profits and keep their stock prices heading skyward.
Ideally, you keep everyone happy, but very rarely is this a reality. Customers must bear the load of otherwise unnecessary price hikes. Employees might see their jobs sent overseas for cheaper labor. Environmental regulations might be sidestepped to reduce production costs. Product components may be switched out for less durable, cheaper substitutes.
None of these problems are unique to public companies, but the pressure to perform for shareholders, no matter what, often exacerbates them.
The debate over whether to please customers or shareholders has raged for hundreds of years since the Dutch East India Company first offered bonds in 1602. While this conundrum is nothing new, the advent of the sharing economy changes things. A new player has entered the game: the owner.
The sharing economy participants divide the “who do I need to please pie” again. Platforms like Airbnb, Uber and Lyft (the platform) need to please the seeker (the customer), the owner (the person who actually owns/operates the asset the platform is connecting the seeker to), and the shareholder.
Neither Airbnb nor Uber or Lyft have gone public yet, so the shareholder is currently not part of the equation, but they will soon be a factor as all three of the companies are poised to conduct IPOs in 2019. Uber and Lyft are currently in a race to be the first ridesharing platform to go public. Airbnb isn’t far behind.
But there is a problem…
“The IPO model doesn’t account for the “owners,” who are arguably the most important participant in the sharing economy.”
IPOs set up a careful balancing act of the company, keeping customers happy versus keeping investors happy. It is a scale with a single pivot point. The public offering, in its current form, is not adequate to also please the “owner” participants.
Let’s imagine you are an Airbnb owner. You rent your home out for tens of thousands of dollars in extra income every year. You spend time and money prepping your home on everything from chic decor to cleaning services to extra amenities for guests. Airbnb allows you to make money you otherwise would not, but it can be labor-intensive process. If Airbnb’s model changes to your detriment, unless you’re strapped for cash, you’re out. Airbnb just lost your beautiful, midcentury modern that’s a five-minute walk from the hottest part of downtown.
Keeping owner participants happy is the most vital factor for the future of the current sharing economy giants, and traditional stock models are not equipped for this task. Owners represent the product, the lifeblood, that these platforms thrive off of and IPOs will force these platforms to kneel before a separate, disconnected group. Owners need to somehow be included in the considerations that would normally be directed towards keeping shareholders happy.
Surprisingly, cryptographic token technologies may offer a solution just in the nick of time.
Owners operate almost like employees to the platforms. Owners provide the service the sharing companies are profiting from. Before an IPO, employees often are given the opportunity to purchase stock. Since owners are not direct employees of these companies, offering them stock before an IPO is conducted is not an easy or legally feasible option. However, by conducting a Security Token Offering (STO) instead of an IPO, the sharing giants may be able to keep owners, shareholders, and customers happy.
Security tokens are the crypto world’s answer to traditional stocks, reinventing the model for the digital age. In short, security tokens offer the same benefits and compliance as paper stocks, like dividends, voting rights and ownership, while also providing wealth of new dynamic possibilities for rewarding token holders.
These new possibilities are where owners and customers could really benefit from the STO model, instead of being shunned in an effort to please shareholders, because they also are sharing a piece of the pie.
Because of their digital nature, companies could set aside a reserve of tokens separate from the ones sold to investors during the STO. These tokens are automatically doled out to owners for reaching certain, predetermined milestones, like a number of services provided, high user rating or time spent on the platform as an active member. Even loyal customers could be rewarded in a similar manner, directly through the platform’s app. Stocks simply do not have the capabilities to reward owners in the same way.
Security tokens could enable the sharing platforms to create a positive feedback loop between the company and the individual owners while allowing the company to go public via an STO. An STO has the ability to incentivize quality performance from owners by rewarding them with stake in the company. Better performance means greater profits for the company, which in turn means happy shareholders (which the owners are now part of). Then the cycle repeats.
The public model has been criticized again and again for the disconnect between shareholders and the actual participants. The rise of the sharing economy necessitates a better system with minimal disconnect. Security tokens offer a superior way for companies to raise funds while pleasing all parties involved. IPOs aren’t up to snuff for the challenges and collaboration required for the new digital sharing economy to flourish.
The new owner class needs to see some of the same kickbacks the sharing platforms will reap from going public. Security tokens help strike this balance, propelling forward the same mutually beneficial, capitalist momentum that has been at the heart of the sharing economy.