Why I support Neufund
Being one of Neufund’s advisors I’d like to share some thoughts on why I believe in this project. In short Neufund is a decentralized NASDAQ owned by the participants of the network. Companies are enabled to issue real world equity shares which are then represented on the Neufund Platform by equity tokens sitting on the Ethereum blockchain. Both worlds are constantly synchronized. For more details read their white paper.
What made me interested — disruption vs. innovation
During the past years I spent in European VC I realized that many people in the industry have an innovator’s rather than a disruptor’s mindset [by using the term disruption I refer to technologies and business models which have the potential of replacing incumbents entirely or creating new industries. Game changers.]. Some patterns I’ve seen quite often include: difficult to grasp on first sight, early or first mover, sounds like science fiction, fundamentally different business model, people behind are not driven by money, zic zacs / pivots, regulatory uncertainties, high entry barriers, turned down by conservative VCs. Neufund matches most of these patterns what I perceived as an initial signal.
Democratizing access to capital for entrepreneurs
Capital markets often don’t work efficiently. Founders being located outside the major innovation hubs have a hard time to raise capital, so do Series C stage companies in Europe for example. Fundraising still is a manual, analoge, expensive and highly inefficient process. By providing a pool of liquidity and the right tools to optimize investment processes, reducing complexity and transactions costs through (smart) contract libraries, Neufund could make a difference for entrepreneurs.
Opening up a new asset class for investors
Also from an investor’s perspective VC is very exclusive. Unless you are representing an institution or are an accredited investor you cannot invest into venture funds or transaction costs would be unreasonably high if you wanted to back companies directly. At the same time your money is locked up for 5–10 years with rare opportunities of liquidating it through secondary transactions in follow on financing rounds. The only thing you can do is buy stocks at a point in time where the company usually is way more matured — lower risks, lower returns.
What if you could invest into real world equity on the same terms as professional investors do — just online with no paperwork and low transaction fees, globally? What if you could close your positions on exchanges trading security tokens?
Not another crowdfunding platform
Many crowdfunding platforms struggle with low quality dealflow offering investments into companies which did not succeed in raising capital in private markets, sometimes for good reasons. They are run by rent seeking intermediaries and don’t share aligned interests with investors and companies.
Neufund might come up with new approaches to this problem by community incentives and governance mechanisms:
- Each Neumark holder benefits from a platform fee each issuing company has to pay (crypto or EUR) and access to a pool of equity tokens. Besides that each issuing company transfers some of its issued equity tokens to a platform portfolio which is owned by the network participants. This way all Neumark token holders have an aligned incentive to pick and invest into projects of high quality. As issuing companies are also becoming Neumark token holders also the entrepreneurs have an incentive to help and support each other. It’s comparable to a VC firm incentivizing all of the founders they backed with some carried interest to increase portfolio synergies but decentralized, transparent and liquid. Hello, network ownership effect.
- Additionally, all transactions and holdings of investors could become transparent in case identities are linked to the respective investor’s public keys. This would enable a tamper proof reputation database, potentially with visualizations of track records. Investors could follow their peers (or professional investors) or even shadow their investments automatically. On twitter you follow thought leaders curating content, on spotify you follow accounts curating your favorite music, on Neufund you follow investors curating the best performing equity portfolios.
- If the network intends to change the rules (aka fee structures, role of Neufund “core team” etc.) it can do so through voting mechanisms which bring the open source spirit to the world of venture financing.
As opposed to crowdfunding platforms there is no rent seeking central intermediary making revenues at the expense of companies or investors. This alone is game changing.
Side effect: Cooling down overheated ICO markets?
As innovative, inclusive and impactful ICOs might — 90% of the projects in the wild are abusing it as mere fundraising tools, not (sufficiently) taking into account network design, crypto economics, supply schemes and genesis token distribution. Many of those projects rely on centralized business models which would work perfectly fine without any tokenization. Instead of bastardizing ICOs these projects could get access to the crypto community by raising funds through equity financing on Neufund.
Open innovation for good
Neufund already contributed to the overall crypto economy through its ICO transparency monitor and its Blockchain regulatory report . The launch of Euro Tokens is another feature bridging the gap between the fiat and crypto world contributing to the ecosystem’s growth and adoption. I am a fan of everything open source.
Core challenges
Radical changes take time and Neufund might face strong resistance from incumbent players and the conventional world of finance. Who would need a NASDAQ or Goldman Sachs to IPO if equity is liquid early on?
Equity financing rounds are essential for every company — identifying the first volunteers raising through a new and edgy platform might become a challenge (“chicken & egg”).
The global regulatory landscape is a moving target and Neufund’s success is highly dependent on it.
There might be a risk of temporary centralization because Fifth Force GmbH is getting a 50% cut of Neumark tokens minted over time to finance platform development before doing its own equity token offering.
Synchronizing the offline legal and blockchain tech architectures is a hell of a task nobody has ever performed before.
[Disclaimer]
I participated in Neufund’s ICBM. This is not an investment advice. Thoughts and assumptions are my own and might not necessarily reflect the Neufund core team’s.
