Singapore startup iSTOX has successfully raised money from government-linked Japanese institutions. The proceeds will go to adding to its small but growing list of funds, securities and investment products that are all being sold to accredited investors in digital form.
Darius Liu, the fintech’s co-founder, says the goal is to create a new capital markets of digital assets that is more like an e-commerce experience than the existing industry’s marketplace.
“We are using the proceeds to accelerate development of new products and structures,” he told DigFin. Funds, securities and structured products are legal contracts. “Today all of these legal structures are still new to digitization. Introducing a new one takes work and resources. But as we launch more, we will become like the e-commerce platform of capital markets.”
Giving investors access to private markets
iSTOX is a digital securities firm with Singaporean licenses for dealing, custody and operating a market. The difference versus a traditional bank, broker or exchange is that iSTOX does everything in digital format, using blockchain technology and smart contracts to tokenize these products.
It has closed a $50 million Series A fundraise led by two government-linked institutions from Japan: Japan Investment Corporation’s arm Venture Growth Investments, and Development Bank of Japan.
Hideki Yarimizu, CEO at JIC-VGI, said in an announcement, “We have decided to participate in the launch of the next generation of digital financial services and platforms covering Asia. We believe that this project will also contribute to the development of Japanese financial services.”
Liu used to work at Singapore’s Government Investment Corporation, so he understands the world of sovereign wealth funds.
“GIC benefits because it’s a big player and gets to see every investment opportunity,” he said, while smaller institutions and family offices often get treated by Wall Street firms little better than retail, with little access to the top private equity funds, hedge funds, and other private-market asset classes.
“Markets evolved into this closed industry,” he said. “Today we have a once-in-a-generation opportunity – the first since the electronification of equity markets – to change the market structure. We can do better now because of technology.”
The company is part of a growing trend of fintechs using digital platforms to help family offices, hedge funds, and wealthy individuals access alternative assets that normally cater only to the biggest institutional investors. Liu argues that iSTOX’s competitive edge is its spread of licenses that let it operate the entire ecosystem by itself.
A supermarket for capital markets
Since going live in late 2019 after being nurtured in the fintech sandbox of the Monetary Authority of Singapore, the startup has issued six investment products on its platform. These are available to professional investors in Singapore. They have all been structured as funds, with portfolios targeting diverse strategies such as risk premia, real estate, and equity in tech unicorns.
This year Liu says iSTOX will launch individual securities as well as structured products, along with more fund strategies. These are either securities tokens (native to blockchain) or tokens to hold units in feeder funds that access traditionally originated funds. The firm is looking to add asset classes such as commercial paper and private debt.
Initially Liu expects the feeder funds to be the major structure, because they are leveraging existing funds. Over a few years, the lower costs of products that are digital end-to-end will draw in more investors, he predicts.
“I hope traditional investment bankers will want to work alongside platforms like ours,” Liu said. “We’re not supplanting their existing business but tapping new pools of capital into private markets.”
He would not reveal assets under management but says the existing six strategies have AUM ranging between $5 million and $20 million. Liu says the firm is processing know-your-client checks on about 1,000 applications worldwide (iSTOX does not cater to U.S. citizens).
The Series A round included two other new investors besides JIC-VGI and DBJ: Japan’s Juroku Bank and a venture capital firm, Mobile Internet Capital. Existing investors topped up their holdings, including Singapore Exchange, Tokai Tokyo Financial Holdings, and Hanwha Asset Management of Korea. Other shareholders include Heliconia Capital Management (an arm of Temasek) and Kiatnakin Phatra Financial Group from Thailand.
The company received its full MAS license in 2020 and signed a memorandum of understanding with Chongqing Monetary Authority to set up a digital securities exchange there, to serve the Chinese market.
