The entire American economy has been built around being able to trust the banking system. You put your money and deposit your paycheck at your local bank (or maybe a national one), trusting that the money will be there when you need it.
That’s something that was perfectly explained in the classic film “It’s a Wonderful Life,” where Jimmy Stewart’s George Bailey convinces his small town to support his bank even though it can’t offer them cash as people fear the bank has become insolvent.
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“No, but you…you…you’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house…(to one of the men)…right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others,” he shared.
Basically, he argued that if everyone believed in the bank, it would be there.
“Why, you’re lending them the money to build, and then, they’re going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?” he asked.
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In the film, Bailey’s personality stopped the run on the bank. Few, if any, banks have the cash on hand if a lot of customers want their money back at the same time, but we do have some more formal protection these days.
Even when a specific banks fails, the Federal Deposit Insurance Corporation (FDIC) steps in. That agency insures deposits up to $250,000 per depositor, per insured bank account.
Typically only the wealthy have had early access to private tech companies before IPO.
Image source: Shutterstock
Alternative banking and investment platforms are risky
People want to disrupt the traditional banking and investing model, but that has proven hard to do. One holy grail in that area has been allowing regular folks into investing in companies before they go public.
Previously, only rich people could do that.
Linqto makes big promises on its website. First, it describes itself as “an intuitive platform offering early access to private tech companies, before IPO or liquidity.”
It also sells itself well.
“Most U.S. companies with revenue greater than $100 million are privately held – leaving an untapped opportunity to capture potential growth in innovative and emerging fields. Investing in this broader set of private companies can act as a powerful portfolio diversifier that has been shown to enhance risk-adjusted returns,” it added.
The problem is that there’s a reason only rich people had access to investments like these. Your money isn’t in something like your neighbor’s house; it’s in a startup with a theoretical value.
More bankruptcy:
- Iconic auto repair chain franchise files Chapter 11 bankruptcy
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- Popular vodka and gin brand files for Chapter 11 bankruptcy
Those values can become zero as soon as investors stop believing. Until a company makes money, its value comes from the number an investor is willing to accept as the value.
That makes it a lot closer to buying Beanie Babies – which at least had scarcity for some models – than investing it in a business.
Linqto has not changed the investment world
There’s a reason we have the current system of banks, private investing, and stock exchanges. It may not be perfect, but it’s regulated.
Most people understand that a bank account is safer than buying shares of even the bluest of blue chips, but even acquiring those shares is still much safer than investing in your buddy’s new startup.
Linqto has learned a hard lesson on the road to disruption: Every system flaw (like everyone not having access to pre-market investments) is a design feature, not a bug.
Linqto, Inc., along with Linqto Texas LLC, Linqto Liquidshares LLC, and Linqto Liquidshares Manager LLC (collectively, “Linqto”) has filed for voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the Southern District of Texas.
Linqto took this step to protect and maximize stakeholder value through a court-supervised restructuring and expects to continue operating throughout the restructuring process.
“Despite reducing expenses, the only way forward is to seek court-supervised protection that will let us restructure the business into a profitable, law-abiding organization while resolving the ongoing regulatory investigations faster,” said CEO Dan Siciliano.
Had the company not filed for Chapter 11 bankruptcy protection, it would have had to close down.
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“The company faces potentially insurmountable operating challenges as a result of serious alleged securities law violations and related ongoing investigations by the Division of Enforcement of the U.S. Securities and Exchange Commission as well as other regulatory agencies. In addition, Linqto recently discovered several serious defects in the corporate formation, structure, and operation of the business that raise questions about what customers actually own and which management believes can only be fairly and effectively addressed through restructuring,” it added.
Linqto has received a commitment for debtor-in-possession financing of up to $60 million from Sandton Capital Partners, LP. Upon court approval, the additional liquidity from the DIP financing, combined with cash on hand, is expected to support critical business needs during these proceedings.