How the Crypto Revolution is Destroying Venture Capital.
The capital markets are undergoing a tectonic shift as distributed ledger technologies enable new models of capital formation and liquidity in Microcap (think early stage startups) equity offerings. Retail investors are no longer constrained by regulatory legacy.
Personal financial investments are still regulated under a regulatory framework which establishes an ‘Accredited Investor’ as individuals with net worth of $1M or more or with income above $200k/yr. or $300k/yr. for those married and filing jointly. You are unqualified as an ‘Accredited Investor’ unless you have built significant wealth or have top-earner dual income.
Kind of defeats the point, doesn’t it? You mean to tell me a millionaire who knows nothing about investing can lose his life savings in a startup while the average CFA/CFP or crypto technologist can’t even invest $1? Just think about how ridiculous this is.
This kind of regulation is doing more harm than good. Hard-working middle-class investors are being excluded from the best opportunity that the American system of capitalism has to offer its citizens — small business investment.
The U.S. House of Representatives recently voted 58 to 2 to “Broaden the definition of an Accredited Investor” (H.R. 1585 - Fair Investment Opportunities for Professional Experts Act) to include individuals with “Relevant professional education and experience” as determined by the SEC, which is expected to reach the Senate floor quickly as of June 25, 2018.
The average investor can now capitalize on the highest returning asset class of them all since 1928, small businesses:
Crypto firms are creating innovative new technologies to automate and optimize new models of capital formation as the SEC forms the criteria for H.R. 1585 — clearing the way for retail investment in early stage high technology startups for the common investor. We’re seeing the democratization of the venture capital model.
An entirely new class of investor is emerging from the rubble.
Just like the VC model made large fund allocations to early stage startups more efficient and effective, distributed ledger technology is disrupting and commoditizing the VC investment model.
Rather than a handful of entities controlling the distribution of capital using centralized planning — an ideology that has taken down entire nation-states — Crypto opens up the playing field to the entire world and enables decentralized models that allow market forces to more effectively distribute capital — no middlemen required.
However, the real problems of risk management and sound investment strategy remain as a major roadblock to mainstream investment in crypto. Disclaimer: I have a place in my heart for VC and hope it thrives for decades to come.
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