Financing acquisition of assets using Digital Ledger Technology (DLT)

Background

Financing acquisition of assets needed to increase production or produce new products can be challenging in an era in which the traditional investor forum are holding onto what they have with a wait and see approach to opportunities, and internal funding is stretched. Unfortunately departments that need to acquire these assets cannot afford a wait and see approach.

Our Approach

Corporates need to rethink their traditional approach to funding asset acquisition and in the process review their traditional sources and means of funding asset acquisition. We at MLS believe that corporates need to begin to consider funding from investors that are Distributed Ledger Technology (DLT) savvy. These investors are experienced at viewing assets not as part of operations but as distinct assets capable of being monetised as standalone assets once digitised or as sometimes also referred “tokenised”.

These new breed of investors that have taken a shine to investing in what are referred to as NFTs (non-fungible tokens) have been born and reared in the era of crowdfunding sites such as indiegogo or kickstarter where persons or corporates seeking to fund their projects showcase the opportunity on a private or public url for investors to peruse and purchase a stake in the opportunity even before it materialises and with no intermediaries. Because they were groomed in this era they comfortable looking outside the traditional fund space. NFTs have taken funding of the acquisition of digitised assets to a different level for corporates seeking to raise funds for the acquisition of assets to be used within their operations.

With NFT’s, corporates can seek funding for assets they seek to acquire as distinct standalone assets from the rest of their operational assets though they will be interoperable. This is especially possible wherein these assets can be monetised and are technology based with the ability to be monitored using the internet of things (iOT). Such iOT based infrastructure lend themselves appropriately for being monitored and monitised.    

The Process

These assets are digitised, not interchangeable and given a distinct identity which is in-corruptible, using smart contracts thus making them a Non fungible token (NFT). Using smart contracts again, fungible tokens are generated which will serve as the means of acquiring interest in the NFT based asset. The fungible tokens are exchangeable,uniform and divisible.     

Case Study

Here is an interesting use case scenario involving an energy company deploying downstream infrastructure to serve a new market. The new infrastructure will integrate with the old upstream platform. Funding for the new infrastructure can be monitored using iOT. Having digitised the intended assets to be acquired as NFTs, fungible tokens are offered to investors interested in the business case behind the intended asset acquisition. Inevitable a due diligence room is available for the investors to conduct their study of the business case. Investors exchange fiat currency (such as Naira, US Dollars or Pounds Sterling) at the given exchange rate on the distributed ledger exchange. The investors are free to trade their fungible tokens in the asset on the same distributed ledger exchange.

Tokenization as a pathway to Corporate Finance

The current economic landscape has placed several impediments in the way of funding operations and acquisitions. Understandably traditional investors are cautiously awaiting the storm to blow over before proceeding with pending opportunities. Financial intermediaries are responding to the conservativeness of their traditional source of funds and holding back with proceeding with transactions.

Despite this lack lustre approach to transactions, money is still seeking channels through which it can funnel itself to opportunities and these opportunities are still there. Corporates still have a need to acquire more infrastructure and in some cases acquire other corporates.  

There are a set of advisors that these seem to have little time or resources to take on new transactions. Once approached their response is we are booked up for the next couple of months. These are ICO advisors. These advisors appear to be where some monies have found a channel through which to meet opportunities. What is an ICO (initial coin offering)? An ICO is a listing of digital assets on a crypto exchange. Very much similar to the traditional IPO but decentralised, without any intermediaries, and relies upon social media type of infrastructure as a means to market the digitised securities.

Pretty much anything can be digitised or as I prefer to refer to it, tokenized. Once tokenized the former brick and mortar asset can now be listed on a crypto exchange. We come in at the phase of conducting the due diligence on the brick and mortar asset or opportunity which is necessary to identify its value ahead of tokenization and subsequent listing at a particular price per token on the exchange.

Corporates can explore this blossoming approach to crowd funding acquisition of assets or corporates seeing as both of the aforementioned can be digitised using tokenization. This particular approach lends itself well to assets or opportunities which can be monitored using iOT (internet of things). The following lend themselves to iOT infrastructure: a QSR (Quick Service Restaurant); an upstream LNG player providing domestic supply; a logistic company; an agriculture based production company and a property development firm. These are just five of thousands of operations that now lend themselves to iOT and hence to wooing funding via digitisation of their assets.

Regulators' core concern with this approach to corporate finance is the need for such transaction owners to do their KYC on investors and for such tokenized securities more importantly to be registered for monitoring purposes.

Please contact us if you would like some help exploring due diligence and drafting whitepapers for tokenization and ICO listing.

MLS (Managed Legal Services) by Oladipo Opanubi specialises in Due Diligence for M&A and Financing transactions. We utilise technology such as VDRs, AI, and Deep Dive analytics to get the job done. Though we emerged from a Law Firm most of our resources are technologists supported by subject matter experts.