Small investors who participated in the public offering of tokenized shares (eng. equity token offering – ETO) in Greyp Bikes have the opportunity to sell their shares if they decide that is what they want.
Namely, the head of Greyp Krešimir Hlede announced that they are currently in talks with several investors as they plan to enter a new round of capital raising, and one investor is interested in buying the shares held by token owners. On the Neufund platform where the ETO took place, token owners were offered to express their opinion by voting on whether they would agree to that offer.
Let us recall that Greyp was the first in Europe to decide to raise capital in this way. They launched the campaign in October 2019 and raised 1.44 million euros in euros and ethers.
We spoke with attorney Marko Kapetanović about the latest developments at Greyp and how they could reflect on others who wish to raise money in this way, noting that his comments are made under assumptions arising from publicly available information, primarily the documentation presented to investors before the ETO was conducted.
What do you think about the payout of small investors who participated in Greyp’s ETO? Why would this move be made?
– It is possible that potential investors, after conducting due diligence, concluded that the ETO from nearly two years ago may not have complied with all regulatory obligations regarding capital raising (for example, the obligation to publish a prospectus) and/or that the conditions from the Investment Documentation – which was presented to investors via the Neufund platform – are not in accordance with all regulations, i.e., enforceable. For example, the possibility of participation of Greyp token owners in decision-making and participation in the profits of Greyp Bikes d.o.o. is questionable.
Namely, the Investment Documentation indicates that the capital was raised through the company Smart Zero UG, which issued Greyp tokens. The sole owner of Smart Zero UG is the company Greyp Bikes d.o.o. Smart Zero UG became a minority member of Greyp Bikes d.o.o. after issuing tokens and raising capital, which increased the share capital by the corresponding amount. According to the Investment Documentation Greyp token owners through Smart Zero UG acquire voting rights and participation in profits in the Croatian company Greyp Bikes d.o.o. However, according to the Croatian Companies Act, rights and obligations from own shares are dormant (including voting rights and participation in profits). Shares belonging to the dependent company are equated with own shares, which would mean that the rights from the business shares held by Smart Zero UG in Greyp Bikes d.o.o. should be dormant, meaning those shares should not carry voting rights or the right to participate in profits. Simply put, it is questionable whether Greyp token owners have voting rights or participation in the profits of Greyp Bikes d.o.o. even though this arises from the Investment Documentation.
Therefore, based on the above assumptions and limited information, I would say that this is a forced move by Greyp Bikes – addressing the so-called red flags before conducting the capital raising process. Although I have not seen the email forwarded to Greyp token holders, publicly available information suggests that investors should still come out with a certain profit, which would mean that financially, despite all potential shortcomings, this was still fundamentally a good deal for investors.
Do small investors really represent such a risk for investors?
– Investors try to minimize existing risks before any investment and therefore seek from sellers or target companies to eliminate or at least mitigate potential risks, which may also be the case here.
How is one protected from this in smart contracts?
– I would not say that it is a lack of the smart contract, but rather a potential lack of the process itself, i.e., the conditions for raising capital.
What message can those who are just considering an STO or ETO draw from this?
– Issuers should ensure that any capital raising is in compliance with all regulatory and other regulations (considering all jurisdictions related to capital raising), for which it is necessary to engage experts from relevant fields.
Does this also mean a setback for such types of financing, which are already rare among Croatian startups and companies?
– It does not have to mean that. However, it seems that with the existing regulations (especially the prescribed obligations regarding the protection of small investors), this type of capital raising process is currently not overly simple/effective and therefore not very common.
