Burbank’s Ikioo Technologies Inc., a digital health care company, has converted its $41.2 million of seed funding into “digital equity securities,” according to a statement from the company last month. Ikioo is currently in the process of creating a platform for health providers and patients. Personalized algorithms will be used to analyze a patient’s health and wellness data, which is then converted into monthly reports to help the user live a healthier life. The Ikioo platform aims to use blockchain technology for providing its service to patients and providers. Information from health providers, data charts, telehealth and other sources would be available through a blockchain ledger. Blockchain technology allows digital information to be distributed without being copied. It was originally designed in 2008 to introduce digital currency, according to Blockgeeks.com. The tech consists of a series of data “blocks” managed by computers that do not belong to one individual or company; it has no central authority, in contrast to monetary transactions between an individual and his or her bank, where the bank is the central authority. The blocks of data are bound, or “chained” to each other using cryptography so the link cannot be followed or deciphered. And each block is unique because the blocks contain different information. Digital securities Blockchain technology also plays a role in Ikioo’s ownership structure. Its shares were converted to digital shares called a Security Token Offering, or STO. These tokens each represent one share and are issued or reconciled on a corporate blockchain ledger. “You can create your own blockchain – the most famous of course is Bitcoin, which is a digital currency – but you could create a blockchain that you could keep track of,” explained Marty Puranik, chief executive of Atlantic.net, an online host provider. “For example, people’s doctor’s visits. It doesn’t have to be currency; you can attach any kind of stuff.” A blockchain ledger is a record of transactions not controlled by one single entity. It is available for viewing by anyone, while still ensuring individual privacy since it uses numbers rather than names to identify parties. It cannot be tampered with by an outside party. “The idea is it’s a consistent, distributed way of maintaining information,” added Puranik. “It can keep everybody honest.” Ikioo’s decision to use a blockchain ledger comes on the heels of a new law signed by former California Gov. Jerry Brown in September 2018 that allows privately held companies in California to use blockchain for tracking stock. The law allows these companies to compile the names of stockholders on record. The Securities and Exchange Commission maintains regulatory authority over trading. “We’re trying to be cognizant of the fact that this was an opportunity given to California companies, and it has to be used in a way that fosters trust, accountability and fiduciary responsibility to shareholders,” said Dr. Ayman Salem, chief executive and founder of Ikioo. “I think that the way we’re doing it, with the visibility and transparency that we’re offering our shareholders, maybe it would advance it a step further at the state level here in California and possibly with the (Securities and Exchange Commission) as well.” Ikioo’s founder believes that digital securities cut out the middlemen for startups. “Our vision is to ameliorate unfavorable market forces that negatively influence the growth potential of young startup companies like ours,” he said. “The core premise of blockchain digital securities is to disintermediate transactions from brokerage fees, listing fees and bring back control to innovators and the hardworking people who are actually doing the work.” The unfavorable forces, Salem said, consist mainly of investors who short sell a company’s stock. Digital tokens could conceivably lower the barrier to buy shares. The tokens trade 24/7 online, and without transaction fees the price to become a shareholder can be lowered. Other companies that have adopted tokens include Puerto Rico’s Tropizen, a medical cannabis cultivator and manufacturer, and EZPack Water Ltd., an Israeli manufacturer of water storage and distribution systems, Stephen Inglis, chief operating officer for Ikioo, told the Business Journal. “With a digital format, you could sell it to people all over the world. … It makes it easier for more people to put their funds in it, and also people can put a small amount of money in, so you’re creating a bigger buyer pool,” said Puranik of Atlantic.net. “It may become a cheap form of raising capital.” A potential pitfall to having digital securities as a shareholder, especially when it comes to securities for a young startup company, is the transparent, public nature of having a blockchain ledger. “When you put it in a digital format, you’re getting a price every second on it, which could be tough for a small company that is just starting up or hasn’t been fully vetted, versus a larger public company that has a much more orderly reporting style,” added Puranik. “Maybe there could be some problems if somebody were to sell a lot of them and the price were to be depressed; that could affect the outcome of the company.”
