- Offering Target Amount: Euro 5M non-voting shares.
- Valuation: Euro 20M pre-money
- Soft cap: Euro 1M
- Minimum investment amount: Euro 500.
- Token symbol: BPS
- Retail investors in the following European Economic Area countries: Netherlands, United Kingdom, France, Belgium Italy, Spain, and Portugal.
- US-Accredited investors (up to 299 investors).
- Accepted currencies: Euro, USD, Bitcoin, Ether
General Background of the Company
Blockport B.V. (the “Company”) is an early stage fintech startup which develops and operates a trading platform for cryptocurrencies.
The platform allows users to buy and sell 15 different cryptocurrencies. The digital assets can be maintained centrally at the Blockport platform or withdrawn by the users to their own private digital wallets.
The platform is available for users in 166 countries with Bitcoin deposits and also supports fiat deposits and withdrawals for users from the European Union (with a 10,000 EUR monthly limit).
Blockport is not a marketplace but rather operates as a broker. The platform is connected through APIs to cryptocurrency exchanges and uses an internal “smart-order-routing” to distribute orders from its users across different markets, whilst searching for the best prices. When a user places an order, this order can be chopped up into smaller orders, which are routed through the network and are then settled at optimal prices across the external exchanges the platform is connected with.
The company’s first fundraising round was executed through an Initial Coin Offering which was conducted during January 2018. The company raised approximately Euro 14M worth of Ethereum in exchange for their BPT utility token.
The BlockPort platform was officially launched during January 2019. Currently the platform services 15,000 users (self-reported). Blockport is mainly aimed towards beginner traders and new buyers (people who are buying crypto for the first time). However, according to its business plan, the company envision new features such as social trading and an internal matching engine in order to attract advanced traders and generate higher trading volumes.
Blockport earns revenue by charging a 0.3% trading fee for both crypto-to-crypto and fiat-to-crypto trading pairs. Users can receive a 50% discount on all trading fees by holding 2500 BPT tokens in their portfolio.
Offering Terms and Structure
The legal issuer will be Blockport Holdings B.V. (the “Issuer”), the parent company (100% holding) of Blockport B.V., which developed and operates the Blockport platform.
The Shares will be issued to a newly established BPS Foundation which in turn issue security tokens (BPS) that represent Depository Receipts for Shares in the Issuer.
The BPS tokens represent the right for non-voting shares with the rights for future dividends (if any, and based on the sole discretion of the Blockport management) to be paid by Blockport to its shareholders. Additionally, these tokens are meant to profit from the increase in the value of the underlying Blockport business.
The shares include the right of first refusal which means that if Blockport
Holding B.V. plans to raise additional funds through the sale of equity, existing token owners will be offered to participate in such equity financing to avoid or reduce dilution of its indirect interest in Blockport Holding B.V. (with the condition that they are eligible to participate in subsequent rounds).
Blockport is looking to raise a maximum amount of 4,999,900 Euro through the issuance of a maximum of 49,999 shares such that each BPS represent one share and equals 100 Euro with a pre-money valuation of EUR 20M. The minimum amount to be raised by the STO is 1 (one) million Euro. In case the minimum amount is not reached, investors will be refunded.
The Blockport securities are offered to retail and non-retail investors in the EU member states based on an exemption from publishing a prospectus and to “accredited investors” who are residents of the United States under Rule 506(c) of Regulation D and up to 299 investors.
Use of Proceeds
Blockport plans to use most of the STO proceeds for further development of the platform, expansion to new markets, and rapid acquisition of new users.
Blockport intends to allocate a part of the proceeds from the STO to a BPT buy program. Acquired BPT will be used by Blockport to continue the reward in BPT under its existing referral program. The costs associated with the BPT buy program are included in the marketing budget.
Business Analysis Opportunities and Concerns
Trading is considered to be a “Selling Shovels” business and the most profitable in the crypto industry. For that reason, this segment is highly crowded and today there are over 180 trading or broker platforms who offer to buy and sell cryptocurrencies over the Internet. Indeed, most of the early equity funding done by traditional venture capital funds like Andreessen Horowitz and USV went to trading platforms where they saw an opportunity for significant gains in the emerging crypto market.
Blockport has fierce competition with giants and old-timers like Coinbase, eToro, Bitstamp Kraken, Coinmama, and others. The Blockport platform is new, and went live several months ago, so in order to attract new users and compete with existing players it will need to offer a product which is 10 times better then currently exist in the market.Otherwise, customer acquisition costs will be too high and it will not be able to compete.
We used the Blockport platform and committed some trades. Based on our experience we see the following differentiators over existing competitors:
- UX/UI: Blockport has one of the best user experiences I ever had for buying crypto. The onboarding and signup process was quick and more intuitive then most crypto exchanges or brokers I was registered with. Also, to buy, sell, deposit, or withdraw is easy to use and intuitive. Even today, after 10 years of Bitcoin existing, buying crypto is not easy for the average person. This high-quality UX/UI can assist Blockport to attract new crypto buyers who until today couldn’t or didn’t know how to buy crypto.
- Fiat to Crypto Gateway: Blockport enables EU member residents to deposit and withdraw fiat money. Today, there is still regulatory uncertainty and most banks avoid working with crypto businesses. Having this operational capability is an advantage. However, this advantage is limited as many other platforms already offer a fiat-to-crypto gateway. Also, as global regulations become more clear, more platforms will be able to offer this function.
- Target Market Status: After the burst of the 2017 crypto bubble, the market has been in a downtrend for the past 14 months. Although there have been some signs of recovery in the past month, nobody really knows when (and if) the market will recover. This raises concerns on the ability of Blockport to generate significant revenues in the short and medium terms. Although in a down market, the number of global crypto users is growing steadily, as can be seen in the graph below. This is an opportunity for Blockport. It will have hard times competing on existing users, however, they have the potential to onboard new beginner buyers with their friendly user experience, especially in emerging markets like South America, Africa, and even Europe.
- Low Volume Low Fees: Currently, The Blockport platform serves as a broker and as such, the trading volume on the platform is significantly lower in comparison to a trading platform with an order book and an internal matching engine. The 0.3% fees charged on trades by Blockport are significantly lower than other brokers in the market who charge between 3%-6% on average. This can help to attract new users but can not support a sustainable business model in the short and medium terms.
Funding: In January 2018, Blockport raised its first funding round in an ICO. Following this, Euro 3M worth of Ethereum was converted into Euro. In Q4 of 2018, following a steep decline of the cryptocurrency market, an additional Euro 1.5M worth of Ethereum was converted into Euros. Currently, Blockport possesses cryptocurrency assets to the value of approximately Euro 1.1 million.
Currently, the average monthly burn-rate of Blockport is roughly 200k Euro with a headcount of 25 employees. The company did not report the amount of cash (fiat money) currently available in their balance so we can not estimate how many months they have left before run out of resources. To our view, 200K Euro monthly burn rate to a startup at their early stage is too high and would hope for it to be significantly lower.
Traction: The Blockport platform went live during Q1 2019 and the company has self-reported that it currently serves over 15,000 users. However, the company does not indicate how many users are active out of these 15,000 users. The company report that based on historical user data from Q1 2019, an active user trades roughly 3000 euro per month on average. An active user is a user that has made at least one trade on the Blockport platform.
The company didn’t report about their current monthly revenues. Also, because of the relatively short time the platform has been operating, important financial factors like customer acquisition costs (CAC) and customer lifetime value (CLV) are not available.
The following risks and issues should be noted about the offering:
- Valuation: The underlying BPS Shares are sold at a pre-money valuation of Euro 20M. To support that number, a startup should demonstrate recurring revenues and user growth over time. In our view, professional venture capital funds would not invest in this valuation based on the current traction of the platform. The company could argue for a liquidity premium (as the tokens could be transferred to some extent in the future) which is usually around 30%. In such a case, when liquidity is not available the valuation would be approximately Euro 15.4M (20M/1.3) which is still too high based on Blockport current progress.
- Indirect Ownership – Token owners will not pose direct ownership in the Issuer. The use of special purpose vehicle or a third party trusty for security token offerings (in this case the BPS Foundation) is common and is done mainly from legal reasons such as limitations on the transfer of private securities. In such a structure, there is only one shareholder on the cap table of the Issuer (the BPS foundation) and the tokens which represent the economic rights to the shares can be more easily transferred and recorded over the blockchain. Here is a diagram which illustrate the envisioned ownership structure following the STO:
- Tax: Dividends paid by the Issuer to token owners are generally subject to a dividend withholding tax of 15% imposed by the Netherlands (partial relief at source or a refund in whole or in part of the Dutch dividend withholding tax may be available depending on the country where the token owner resides).
- No Custodian – Token owners hold their tokens privately on a digital wallet and are responsible for the security and storage of their private key. If a private key is lost, destroyed or otherwise compromised and no backup of the private key is accessible, token owners will not be able to claim ownership over their underlying shares. This is not ideal at all. A trusted custodian should be in place to secure and insure the digital assets.
- Liquidity and Transferability Limitations – BPS is currently not planned to be listed on a regulated trading venue. However, BPS can be traded between certain investors (over-the-counter). Investors residing in the EEA will be able to freely transfer BPS to other wallets approved investors residing in the EEA. The US-Accredited investors will be limited to transfer their tokens for a period of 12 months. After the holding period of 12 months, the lock will be released and BPS tokens not held by affiliates of Blockport may be freely traded. However, at no time the BPS will be held by more than 299 US residents.
The BPS tokens are a venture investment in an early stage startup and therefore carry a high risk. For individual investors, it can be an opportunity to be exposed to the most profitable sector of the crypto industry through an equity investment without having to risk significant amounts (min investment amount is Euro 500).
In a relatively short time, the Blockport team has demonstrated impressive technology development and marketing skills.The current platform has high-quality user experience and the company managed to acquire a few thousand users in the first months after the platform’s soft launch.
However, the company is competing in an already very crowded segment and its target market is currently in a downtrend with many uncertainties.
In our view, the current traction of the platform and lack of available financial history does not support a Euro 20M pre-money valuation. A more reasonable approach would be for the Company to do a smaller bridge round, that will support its short-term growth and to go a for a larger round after it has demonstrated sustainable traction and revenues for a longer period of time.
This analysis is based on publicly available information. The information contained in this article is for educational purpose only and not financial advice. Do your own research before making any investment decisions.