Democratising venture capital across Africa?

Crowdfunding Image by Tumisu from Pixabay

I have been opportuned to spend my 7+ professional years in development, working at various startups. usually from just an idea; a vision, scoped on a board, modelled, architectured and designed into a full product.
Painstaking (energy drinks) filled nights, with only the sound of crickets and your coworkers for company…

3–5 months later, you have an MVP; you’re finally into beta, acquiring users, making transactions, many love your product, you fight bugs (a lot of bugs), it seems your hard work is finally paying off, but there’s a problem… you’re running out of money. the product was mainly bootstrapped to get to a point, it’s time to get to the next phase of a company’s cycle. Fundraising

The most common way we raise money around here is via venture capitalists (VC), Angel Investors. You arrange your pitch deck, the usual data (market segment, potential users, current transactions, projections, etc).

There’s a high chance you get told a lot of No’s, then you finally get that Yes from a VC willing to put in $25–50k for a 7–10% equity. you’re back in business, time to grow…

This is a cycle we rinse-repeat so often, and unfortunately, the VCs (capital) isn’t enough to go round, for some of us, we get a lucky break and an international accelerator loves our idea and is willing to invest.

This article offers an alternative solution to this rinse-repeat process, well more point out something we’ve always done, Crowdfunding.

Crowdfunding ideally is how many companies have been able to bootstrap to Product Market Fit. A few platforms like Producthunt have been able to scale this process to sustain many companies. Some possible problems with doing that around Africa as i see are:

1. Trust: How do i trust that after I put my money into this company, they won’t run away with it
2. Verification: How do we keep record of who owns what shares?
3. Security: how can we be sure this record will not be manipulated
4. Liquidation: Can i take my money back, if i need if for emergencies etc
5. Ease: how easy is it to perform these transactions (buy, sell)

How do we get the best of crowdfunding and still solve these problems? welcome the blockchain.

With the advent of the blockchain, we have seen major leaps in finance. This is due to the borderless, immutable, and secure properties of the blockchain. This use-case is no different.

Personally, i feel trust can be achieved by contractual partnerships (I could be wrong).

First, we introduce security tokens. security tokens can be used to digitize (tokenize) any tradable asset (stocks, bonds, futures). This helps for ease of buying, selling or transfer of any asset, as they work just like cryptocurrencies. Because these assets are visible on the blockchain, verification of who owns what asset can be done with minimal ease on places like Etherscan.

Secondly, how do we ensure ease of buying and selling any asset? this is where an Exchange comes in.
These assets (stocks) can be easily sold by the company (for capital) and bought by “investors” thereby generating working capital for the startup.
If an investor needs to “liquidate” they simply sell their asset back on the platform.

Possible problems to encounter:

1. The need for Automated Market Makers/Takers: For a proper exchange like this to work, there has to be a large pool of people willing to buy (takers) and people willing to sell (makers). this ensures near realtime fulfilment of transactions.
2. Regulation: SEC rules on securities (assets) here
3. This is all theoretical, nothing happens until companies are willing to sell assets on the platform and individuals are willing to buy.

I am conducting a survey on (3) here

Big thanks to William Okafor for pushing me through when this was just a random “fancy” idea i had.

NB: again, this is all theoretical, feel free to send a DM @bigbrutha_ if you have some thoughts on this, you want to share