Citi Pitches a Cleanup for Murky SPV Market

Getty Images.

Citigroup wants to tackle the murky ownership problems that have proliferated among private tech firms as more special purpose vehicles have popped up promising to connect investors with the hottest startups.

The bank this month said it is launching a new service that lets investors trade private company shares on a blockchain. It’s initially limited to foreign investors—it will expand to the U.S. later. And Citi needs the companies to agree. So far one firm has done so.

That firm is Kaleido, a technology provider for enterprises to use blockchains, which has an interest in the concept. Still, if other private tech firms embrace Citi’s idea, that could expand investor access to the sector—even as it helps companies avoid the risks of unauthorized trading in their shares.

The way the service works is that Citi will issue depository receipts—a security used for companies to access foreign investors—for private companies. It will apply a serial number for each security so ownership can be clearly tracked and transferred on both the blockchain and existing market infrastructures.

The pitch is timely. As startups stay private longer, a cottage industry of brokers and platforms for secondary share sales has cropped up, selling interests in private companies through layers of special purpose vehicles. Some of these options have gotten so complex that it’s unclear what investors actually own. Meanwhile, many private companies ban trading in their stock without approval to avoid losing control and visibility into their ownership.

Anthropic recently spooked some investors by warning them it won’t recognize sales of Anthropic stock its board hasn’t approved. It advised people to beware of stock scams and encouraged them to report potential frauds.

With Citi’s private company tokens, investors “will have legal, verifiable certainty that the underlying [asset] behind those is the actual shares in the company, with the consent of the company, directly on the cap table,” said Artem Korenyuk, the bank’s global lead for digital assets enterprise alignment and services enablement. “That’s the fundamental difference that you do not get when you invest through these multilayered third-party SPVs.”

Citi said it will get explicit permission from each company before offering its shares on the blockchain. “We don’t want to go against the company’s desires or intent,” said Korenyuk.

That could be a big hurdle. The hottest startups may not see the need to opt into Citi’s service, and the companies that are willing to test the waters may not be the most popular names.

Some public companies have decided to tokenize their shares: but so far they have been crypto-adjacent firms like Galaxy Digital and Figure Technology. Companies whose shares are heavily sought after, such as Apple or Tesla, haven’t done so.

Still, Korenyuk believes large private companies will have incentives to opt in. Citi, acting as an agent and custodian, will show up as one line item on the company’s cap table, allowing it to clean up its cap table without losing control of and visibility into who owns its shares. Founders and shareholders can use the depository receipts as collateral to borrow money. And Citi is working to bring the service to the U.S. in the future, though it doesn’t have a timeline for that.

“There’s internal approval that Citi has to go through,” he said. “And there are more specific implementation models that are more suitable for the U.S. market to comply with existing rules that need to be built out.”