Investment Platform Republic Plans to Let Anyone Bet on SpaceX — WSJ

By Corrie DriebuschAn investment platform plans to use blockchain technology to sell investors exposure to SpaceX, another effort in an arms race to give regular traders access to hot startups.Republic says it is starting to sell digital "tokens" that mirror the performance of private shares of Elon Musk's rocket and satellite company starting this week. The investment platform, which offers retail investors access to investments typically limited to the wealthy, plans to eventually expand its tokenization to other high-profile private companies like artificial-intelligence firms OpenAI and Anthropic.Republic's plan is part of an array of efforts by crypto exchanges, brokerages and others to reinvent securities using similar blockchain technology that underpins bitcoin. Still largely untested with regulators, and even the underlying companies, the tokens are another attempt to trade on stocks that can't be found on the New York Stock Exchange or Nasdaq.But there are plenty of questions. Token buyers won't have access to companies' financials and won't own actual stakes. Lawyers question if companies like SpaceX would fight it. The tokens could also draw scrutiny from regulators.Republic CEO Kendrick Nguyen said he's confident in the tokens' legality, but added that it's possible regulators might take a different view.Republic says it is able to offer the tokens in part because of a provision in the 2012 JOBS Act that lets private U.S. companies issue securities and raise up to $5 million a year from retail investors. Republic says it would be the issuing company, and the tokens are essentially a note that assures token holders will be paid any increase in the price of SpaceX's common stock if it goes public or is purchased.Republic has a license through the Securities and Exchange Commission that allows it to use this Regulation Crowdfunding exemption to sell tokenized securities to retail investors. Nguyen said Republic won't need permission from the companies whose tokens it is selling because the tokens represent securities sold by Republic.The tokens for SpaceX and other companies will initially be priced based on how the company's shares are trading in secondary markets where shares of private companies can be exchanged by accredited investors. When the company goes public or is sold, Republic says it will owe any increase in price to the token holders.Republic plans to hold shares of or have some other exposure to the underlying security, Nguyen said. Token investors won't be acknowledged as shareholders in the company .Wall Street wants to pitch stakes in highflying startups and other privately held companies to ordinary investors. Trump administration officials have said the private sector is a major engine of growth and are looking to increase everyday Americans' exposure to private-equity investments.Others have flagged the possible risks. Moody's, for instance, recently warned that the push to sell private investments to retail investors could trigger stress in the financial markets and that the investments can be harder to sell.Republic will let people invest as little as $50 and up to $5,000 in the tokens. Typically, people who want to get in on private companies need to invest upward of $10,000, or even $100,000, and must meet certain income or net-worth requirements.For the most popular companies, it helps to have an in with the founder.After a year of holding the tokens, Republic says people will be able to trade them on INX, an alternative trading system Republic is in the process of acquiring.For startups that want to stay private longer, one big hurdle is keeping their investor bases limited. Once there are 2,000 shareholders "of record," a company is legally required to disclose financial information that is similar to a public company. To help skirt the requirements, fund managers have created complex financial structures.Tokenization could be another workaround.Republic already lets investors buy tokenized securities in other private assets like sports clubs or films.Some lawyers question how Republic will meet requirements that investors be given financial information about the companies before they invest.Binance, the world's largest crypto exchange, introduced tokenized versions of Tesla and other U.S. stocks in 2021. But it pulled the plug on them a few months later after regulators around the world warned that Binance didn't have licenses to offer them locally.Write to Corrie Driebusch at [email protected]