We Have The Investment Vehicle For The (post)ICO Age
bardiventures will be one of the very first EU-approved tokenized venture capital funds. Let me tell you why it makes sense:
It It is profoundly human, that we all love to chase sensations. In the last 3 years, blockchain sparked an incredible level of excitement. For investors, its comparison to the ‘1990’s internet’ worked like a magic, as they poured millions into cryptocurrencies left and right.
It’s like derivatives before 2007. Blockchain offers just the right level of complexity (for it to remain only partly understood) and promise (world transformation on par with the rise of internet) to trigger an investment hysteria.
The crypto-mania of 2017 saw millions flowing into Bitcoin and other altcoins, causing the prices to reach record highs propelled by fairy-tale expectations, only to collapse in a plunge that was (and is at the time of writing) worse than the Dot-Com Crash, falling by more than 80% from their January high.
Problem №1: Digital Tulips.
The Initial Coin Offerings (ICOs) have since been compared to ‘digital tulips’ and even likened to a fraud, as people began to utter the acronym ‘ICOs’ with a tone full of disgust.
But just as they were overhyped on their way up, ICOs are now looked down upon perhaps too harshly during the severe downturn in the crypto-market. This may not be entirely fair.
If ICOs were judged as just a new form of crowdfunding for projects posed to improve the world, they would be sure to earn a more positive sentiment. Whether good or bad, ICOs fail rates are egregious, as words ‘moral hazard’ come to mind. A study by Forrester Research estimates that 90% of blockchain projects in U.S. may never become operational.
Enter reverse ICO.
Reverse ICO is a process in which existing real-world businesses raise capital by issuing their own blockchain token. At bardicredit, we believe that the reverse ICO will come to be the popular form of fundraising for smaller private companies that have stayed behind during the ICO craze, focusing instead on building a robust business model.
Many of them have a viable business model and sound technology, but are #3 — #7 in their industry and need capital to scale up. Far from becoming a market leader, they are struggling to attract capital from investors especially in their early-stage.
For many of these UBER-like start-ups, tokenization makes a strong underlying sense. Payments based on some form of a blockchain token are ideal for their ‘on-demand’ services that require frictionless digital-only transacting.
Problem №2: Regulation.
It is no secret that ICOs will be coming under much tighter scrutiny, as the world’s regulators are waking up to the new reality. Letters sent by SEC to a number of ICOs in the past few months are particularly worrisome. They are written like templates for further re-use, implying that SEC is just beginning a wider ICO crackdown.
Investors’ pain inflicted by the ICOs disastrous performance and the legal risks associated with them have taken heat out of the market. ICOs are trying to relabel themselves as Security Token Offerings (STOs), a more sensible and legally compliant form of fundraising on the blockchain, recognizing that most tokens are in fact a right of ownership. But entering stocks on the blockchain is more than just a rebranding exercise.
When trillions of dollars of paper stock certificates have been ruined in 2012 after Hurricane Sandy flooded a vault at the U.S. Depository Trust & Clearing Corp., the damage was administrative rather than an outright financial loss from any lost ownership interests. Since 1980’s and the advent of electronic trading, stock shares have been moving from paper to electronic certificates.
Putting stocks on the blockchain brings this digital transformation to perfection. It would streamline and simplify their trading and issuance, removing middlemen such as the DTCC in the process.
STOs have, therefore, understandably gained a lot of attention, but they remain prone to the same legal challenges as ICOs. There is no formal regulatory framework for security tokens. Instead, issuers rely on some parts of the existing securities law, trying to make up what it means in their case as they go along. As of yet, there is also no established secondary market for STOs, which makes them wholly illiquid, adding one more to the list of their issues. For a traditional investor, there is nothing worse than getting stuck with an asset they cannot sell.
Enter tokenized fund.
The process of representing real assets like stocks on the blockchain makes strong underlying sense. One could imagine that smart tokens built into the tokens will be able to restrict who, how and where can trade them. Blockchain would also remove the middlemen in the form of central repository. But, STOs may well be prone to an even larger legal and regulatory challenges 1–2 years down the line, depending on the delay with which SEC and other world regulators begin to act. The innovation of putting stocks on blockchain may be revolutionary, but there is a long way before we get to a final regulator-blessed way fo doing it.
For investors who would like to get exposure to the STOs, but don’t want to fall foul of idiosyncratic risks of any one project, a tokenized fund could be the ideal solution. Aside from the obvious advantage of diversifying their investment across multiple security tokens, investors gain by pooling their money in a vehicle, with one and only aim — that is, to stay abreast technological and legal developments and reallocate investors’ wealth accordingly.
Working to develop one of the very first EU-approved tokenized fund structures, we are making sure that our token will be approved by European regulator like a normal stock. This means that our investors will own a legalized approved token, while at the same time be invested in a portfolio of businesses at the forefront of tokenization developments.
We are a member of the Alternative Investment Management Association (AIMA), a global association of hedge funds, private equity and VC funds with more than $2 trillion under management. AIMA’s public affairs work on the ground in Brussels, the UK, the United States and Asia will help us to engage in dialogue with world regulators and advocate as a pioneer for the nascent tokenized fund industry.
bardiventures is working to be one of the very first EU-approved tokenized venture capital funds. Our mission is to open venture capital to a much larger audience of investors.
bardicredit, the initiator of bardiventures, and the turnkey fund tokenization consultancy, is a member of the Alternative Investment Management Association (AIMA), a global association of hedge funds, private equity and VC funds with more than $2 trillion under management.