The Death of Fundraising and why DropDeck represents the Future
Startups are the lifeblood of not only the economy but also the society as a whole. These young businesses are the risk takers that push the entire humanity forward. Over the years, VCs seemed to have put a chokehold on startup fund raising. And though you hear the mercurial stories of AirBnB and Uber growing from an idea to billion dollar companies, we fail to assess the wastage across the ecosystem and how the funders of disruptors have failed to disrupt themselves.
Problems plaguing the current funding system
The two underlying problems that are making the entire funding system inefficient and less effective are:
• Misallocation of Capital- This problem is threatening to dismantle the very existence of the entire global funding industry. Out of $100 trillion global investible capital, only 1.4% is spent a year in aiding innovation. A majority of it is being invested on zero-sum games like high frequency trading and convoluted derivatives, created by Wall Street for the express reason to generate fees for itself.
The below graph showcases another trajectory of how VCs have been failing the very startups they were born to serve and nurture. Early stage deals are in a secular decline as VCs look to de-risk and focus on “safer” later-stage deals.
This problem also stems from “misallocation of attention”, globally whatever resources (credit ratings, etc) are at the disposal of the investors are not sufficient enough to decide where the funds should be invested and why. These inefficiencies have been taken as a cost of doing business and have restricted the migration of a large pool of capital to global startup investing.
• Lack of trustworthy evaluating yardsticks — both companies as well as the funders are plagued with various obstacles that prevent them to evaluate each other and hence face hurdles when it comes to funding. Geographical distance, complex legal and banking regulations among countries in cross-border fund transfers, information overload/scarcity, and lack of means to verify facts and build trust are the major hurdles hurting the funding ecosystem.
Though these problems have been hindering the investing process for long still the lending platforms and startup investors have still not been able to devise a fool proof solution to address these problems, thus leaving the door open to tap into a huge and lucrative market which is worth approximately $300 billion.
Furthermore, the existing platforms do not provide appropriate information or data that can help in deciding which project to fund and which to avoid. And also these platforms operate on limited data and liquidity pools, have limited accessibility, and are not forthcoming in rolling out new products to market. Additionally, with centralized services, the user incurs additional risk such as theft or other failures, and unexpected issues with payment processing.
New tool for raising money: ICOs
Source:Coinschedule.com
The buzz around ICO (Initial coin offering) just refuses to die down and justifiably so. They have overtaken early stage VCs to become the preferred source of capital for young startups and the big boys of the tech world have started noticing.
“The ICO market may replace some early-stage venture activity is directly hinted at by the purported VC panic over the coin offering boom.”
Editor in Chief
Crunchbase News
But ICOs still face the issue of the missing yardsticks for determining the credibility of the business. Many ICOs have been frauds and a majority has no credibility or team and advisors in place, just a whitepaper to tout their ideas. Alon Vo, DropDeck’s founder is creating a new paradigm with his company to solve this trillion dollar problem. His strategy of incentivizing the contributors in the ecosystem while ensuring human-AI collaboration has changed the stakes of the game where every participant only benefits if the entire ecosystem wins.
Emergence of DDD (Decentralized DropDeck) token and the New Paradigm
DropDeck is a global cross-border funding platform for startups and SMEs. It runs on the Ethereum Blockchain to leverage its smart contract, cost-effective payment ecosystem and consensus mechanism features. DropDeck passed the first round of IBM Watson A.I. XPRIZE Competition (a $5 million AI and cognitive computing competition challenging teams globally to develop and demonstrate how humans can collaborate with powerful AI technologies to tackle the world’s grand challenges) and is among 146 teams globally who are supported by IBM’s and XPRIZE’s network of mentors. DropDeck is also among the first to integrate blockchain features with AI applications that will help in improving the integrity and quality of scoring and ranking of the fundraising companies.
The platform has been built on delegation and incentivization; it employs DDD tokens and smart contracts to ensure that all participants are financially incentivized to assist funders in minimizing their risks and maximizing returns. This allows for fundraising companies to be accurately scored and ranked and helps in creating a positive feedback loop between funders, fundraising companies and enablers. This creates powerful motivation for authenticity of data and in-depth research, thus creating a virtuous circle where the funders are encouraged to repeat the funding as well as indirectly attracting more and more funders. Thus there will a corresponding increase in the value of DDD tokens as gradually the size of the funders’ ecosystem increases.
Benefits of DDD
• Buyback — DDD token earnings are accrued in the DDD smart contract, part of which is used to buyback the tokens on exchanges, which will in return increase the token net worth of all the DDD holders as the overall supply of tokens decreases.
• Reputation- When the funder funds the companies through the DropDeck platform, it improves funders, funded companies, and all associated entities crypto-credit rating.
• Transparency- The funder cannot only monitor the spending activities of the funded company but also ensure that the funds are released only when all the contract requirements are met.
- Ecosystem Benefits- All the benefits of an AI-powered Ethereum Blockchain ecostystem accrue to the users of the platform.
Types of Funding
• Contribution- Startups and fast-growing companies without stable cash flows usually use this type of funding. Funder receives a percentage of the funded company’s future revenues (royalty) over a certain period of time, up to a specific amount. The biggest advantage of this type of lending is that the funder can send the DDD in installments which in return helps in minimizing the risk.
• Lending- Mostly SMEs with stable cash flows and a specific spending purpose apply for this type of funding. The lender receives a fixed amount (including interest and principal) on a regular (mostly monthly) basis over a certain period of time.
Conclusion
DropDeck is disrupting how investors fund companies and innovation on a global scale. The investing community has been handicapped from inception due to its inability in evaluating data and enforcing policies on a local scale. DropDeck allows funders to go Glocal- they can leverage the platform’s AI to understand underlying credit patterns for companies throughout the world and can simultaneously depend on local partners for authenticating data and performing compliance. This virtuous win-win ecosystem removes the friction from investing in innovation and democratizes the existing funding systems.
