Technology Can Help Take Private Equity Public

The wealth created by technology in the last two decades is unlike anything ever seen in history. Legendary founders -- Gates, Jobs, Musk, Zuckerberg, Bezos, Ma -- have built products and networks that have enabled people around the world to work, shop, share, and communicate in ways that were unimaginable only a few years before. In the process, they have built fortunes that put them among the wealthiest people ever to walk the earth.

But ironically, the financial structures underpinning this explosion of technology and wealth have remained stubbornly twentieth-century. This is not simply a curious aberration; it has helped ensure that only those possessing wealth or genius have been able to reap the greatest rewards of the tech boom. This has helped fuel global inequality. Ordinary investors who don’t possess significant net worth are excluded from investing in companies before they IPO.

But now, technology offers a solution. I am referring to digitalized equity. This can confer many or all of the same rights enjoyed by traditional business investors, but in a more efficient and transparent way that is far less prone to abuse or human error. Most importantly, digitalized equity can also remove barriers to entry for people who want to invest in valuable, privately-held companies even if they lack the personal wealth to do so under traditional financial regulations.

In the U.S., E.U., and other jurisdictions, only people with high levels of wealth -- for example, a net worth of $1 million or more -- are legally permitted to invest in companies that do not trade on public stock exchanges. Ownership stakes in such privately-held businesses are collectively known as private equity. Over the past three decades, private equity has been an engine of wealth creation for those rich enough to participate. According to The Institute for Private Capital, private equity returns have outpaced public equity markets every year since 1988, sometimes more than doubling them. Ordinary people have been locked out.

Now, digitalized equity presents an opportunity to take private equity public. Thanks to clearance from Liechtenstein, within the E.U., we are for the first time able to use a blockchain to confer equity ownership, with the rights and benefits that entails. People can participate with as little as 10 EUR ($11.12) to invest in private companies. This is democratizing investment.

The way it works is simple: investors, after passing a “know-your-customer” background check, purchase digital tokens written to a blockchain. These equity tokens are based on “smart contracts” that automatically confer ownership or ownership-like rights. They grant and manage shareholder privileges such as voting and payment of dividends, enjoyed by all owners whether wealthy or not. And because blockchains are untamperable, permanent ledgers, regulators can have greater trust that bad actors are not taking advantage of vulnerable people, a key rationale behind rules to restrict investors. Finally, the automatic execution of the smart contracts means smaller, private companies with fewer resources than their publicly-traded counterparts can still ensure governance and other aspects of shareholding are properly administered.

Over the past decades, those with the money to invest in private companies have enjoyed outsize financial returns, growing their wealth and contributing to global economic expansion. But the vast majority of ordinary people have been left out. Now, digitalized equity offers us the tools to bring everyone, not just the rich, inside the fold and truly make private equity public.

(Kresimir Hlede is COO of Greyp, a mobility company conducting a first-of-its-kind digitalized equity offering to support the buildout of an integrated technology platform.)