What if blockchain tech was a lever that helps close the productivity gap?
The case for tokenising VC funds from less developed regions
The answer to the title question is painted in shades of grey area. Blockchain tech could very well be an opportunity for emerging economies to close the productivity gap; if this is the dawn of the internet of assets, the near-free asset exchange and further disintermediation that it promises could become critical variables in redistributing global wealth. Much like a game of musical chairs however, those that fail to get in the game early and build up proprietary assets, will be left behind and will later be forced to “rent” those assets from their owners. Chances are that the odd ones out will be those that currently operate in systems that provide them with limited access to capital, weak infrastructure and little exposure to the global market.
The story so far
Data from 2017 on the the activity of blockchain companies around the world, suggest that the (GDP) leaders are also leading the blockchain race, with China and USA concentrating the bulk of activity on the global blockchain map. Unsurprisingly, a heatmap of ICO activity around the world shows that it is mostly concentrated in the East and West coasts of the US, London, Northern Europe and business centre’s in coastal China (and Singapore - of course). It seems that the productivity gap on that front is about to widen.
However, that does not necessarily imply that opportunity isn’t rife in the less active areas of the map above. By providing niche services and building up their own proprietary assets, regions like LATAM and Africa can position themselves favourably for the next wave of global tech innovation.
Hope on the blockchain
Enter the case for tokenized venture capital funds that represent the region’s best and brightest. Where the general financial, commercial and even cultural framework, provides with obstacles for projects with high potential to come forth and raise capital in the global markets, pulling together under the umbrella of a fund with proven track record and reputation in order to pursue fundraising opportunities in a blockchain environment, is a viable alternative. To highlight the opportunity here, in a recent report McKinsey holds that in the LATAM region “the efficient adoption of digital and automation technologies and broadening access to capital” is where growth opportunities lie, in a macroeconomic environment that is projected to expand in 2018 (World Bank).
While this additional layer of centralization might go against the grain when it comes to current developments in the space, it presents with a well-grounded solution to the time and resource constraints that start-ups in those regions face. By pooling resources and having a specialist with global reach take care of the administrative side of fundraising, entrepreneurs can really focus on what matters most; delivering a world class product and wowing their customers.
At the same time, the seal of approval of a recognized VC helps bridge the information gap on the investor end. As language, accessibility and resource constraints come into play, information on the projects, the teams and the markets they operate in can be difficult to access. With a reputable VC acting as the mediator between startups and the market, these barriers are relaxed. The rigorous pre-selection process that VCs have in place (VC funds routinely invest in 1%-5% of the leads that are presented to them) is an effective filter in itself, such that investors can come to meaningful conclusions about the potential of their investments by performing due diligence on the fund itself, rather than dispersing their energy and resources in deep research on a multitude of companies. At the same time, a single security-type token allows investors to access diversified portfolio of start-ups that operate in different high growth industries, thus containing the risk profile of the token and adding to price stability.
Finally, the tokenization aspect presents investors with additional advantages in higher liquidity, creation of deeper markets with improved price discovery and the opportunity to participate in performance gains (profits) on a continuous basis, through open market operations (post acquisition buybacks of tokens, redistribution of profits via airdrops etc). As the start-ups grow, they add to the capital stock of their respective regions, and as their reach widens, they will become increasingly more attractive targets for acquisition by global players looking to expand their operations in emerging markets.
Results beget capacity
The potential for such projects to become region defining successes, is significant. Whether or not they will, comes down to how effective the execution will be, as well as the type of influence systemic factors (call me regulation) exert on the development of the global blockchain ecosystem.
Real and long lasting results, lie in the increments; many small actions done well, consistently, over a long period of time. The short-term impact of the individual successes of such projects, might be negligible on the big picture. They will however be instrumental in producing a powerful narrative for a new generation of technologists and entrepreneurs to be inspired from. And that’s where the transformational power lies.
