OMERS expands cryptocurrency presence with $50-million Ethereum public company offering

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The Globe and Mail | and   |  Jan 29, 2018

Ontario pension giant OMERS is pushing further into the rapidly expanding cryptocurrency business through the creation of an Ethereum-focused public company that is planning to raise $50-million.

Newly-formed Ethereum Capital Inc. announced Monday morning that it is launching a private placement co-led by Canaccord Genuity Corp. and CIBC Capital Markets to sell 20 million subscription receipts for $2.50 each. Its plan is to then amalgamate with publicly-listed B.C. shell company Movit Media Corp., with investors set to receive one share in Movit for each Ethereum Capital receipt after the offering's anticipated closing date of Feb. 16. The combined firm will be known as Ethereum Capital Corp.

Ethereum Capital's strategy is to acquire Ether, the cryptocurrency native to the Ethereum digital platform, and by buying controlling stakes in Ethereum-based businesses. Ethereum is a token-based blockchain platform for building decentralized applications and facilitating transactions without an intermediary and Ether is the system's unit of payment.

It has been the technology of choice for many digital token creators, including Waterloo, Ont.-based instant messenger Kik Interactive, fuelling the boom for initial coin offerings. The system has also been given credibility by the Enterprise Ethereum Alliance, a group of blockchain supporters including major global businesses such as Mastercard, Microsoft, J.P. Morgan and Bank of Nova Scotia.

The company was created by OMERS as well as OMERS-backed exchange traded funds manager Purpose Investments, led by Som Seif, an OMERS-backed startup called Citizen Hex that buys and sells Ethereum digital tokens, and L4 Ventures, a Toronto blockchain incubator advised by Ethereum's Canadian creator, Vitalik Buterin.

John Ruffolo, executive managing director of OMERS' platform investments arm, said in an interview that "the thing we're extremely excited about is that we believe Ethereum is going to be one of the foundational building blocks" in the blockchain space. He added OMERS is focusing "on the underlying crypto assets, not the crypto currency per se" such as bitcoin. "As venture capitalists we continue to place bets on the underlying entrepreneurial businesses, not currency speculation."

The proposed deal is similar in some ways to last year's aborted $100-million offering by NextBlock Global Ltd., led by Alex Tapscott, which was also set to invest in private blockchain companies and cryptocurrencies until news reports revealed that its marketing materials misidentified advisers to the fund who had not agreed to serve in their purported role. In both cases, CIBC and Canaccord were hired as underwriters and followed a similar go-public strategy by way of a reverse takeover of a publicly traded shell company. The NextBlock deal was quickly pulled in early November after the embarrassing revelations about its advisers.

See:  Ontarians and Cryptocurrencies: A First Look

Other cryptocurrency and blockchain-based ventures with wide-ranging applications have increasingly sought to come to market using the reverse takeover model, particularly on the TSX Venture Exchange. The model allows these businesses to avoid the cost and regulatory burden of creating long prospectuses and, as happened in the dot-com bubble, has seen junior commodities firms and other companies from unrelated industries transform themselves into hot cryptocurrency plays.

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