While VCs have been successful recent decades, the industry is facing a major revolution. As we’ve all heard about that one VC who invested into Uber or Facebook early, one could have hoped to be given this opportunity. However, the VC industry is very closed to external investors not part of the inner circle. The industry has barely changed since the inception of the internet. Moreover, while venture capitalist mechanisms are working, we argue that it could be greatly improved.
In fact, most VCs affirm to be facing one big problem: liquidity. More specifically, the absence of liquidity for investments that they made years ago. Indeed, when investing into a venture fund, one has to be willing to wait 5 to 10 years before exiting the fund, unless they incur a large cost.
The world is evolving at a rapid pace, after the internet revolution, now comes the blockchain revolution.
Enter Digital Assets
Using blockchain technology to tokenized securities, VCs can finally issue shares to investors in the form of tokens representing a fund’s shares. Of course, issued tokens hold traditional ownerships but give investors the possibility to create a valuable secondary market on security token platform/exchange, thereby offering investors the flexibility to reallocate their portfolio if needed, or simply exit a position.
- Further, Security Tokens bring VC investments to the reach of everyone willing to invest low amounts, or simply can’t wait years to have their money locked away. All of this is possible due to one feature: Distributed Ledger Technology & tokens (representing ownership of the fund). Tokens are fungible by design, one investor can therefore choose to invest as much as $1000 if the juridictions’ laws allow. Whereas today, most VC funds have a high investment entry.
- Security Tokens bring several interesting features to the table such as rapid settlement to execute the transfer of ownership or automated compliance. Moreover, as tokens are programmable, regulations governing a particular security can be embedded into the token. There are many advantages for digital assets to be used over traditional securities as we’ve explained earlier in this article. Finally, using blockchain technology for the representation and the exchange of unlisted assets enables investors to truly own their investment on their cryptographic wallet without relying on intermediaries.
With Security Token technology, startups and companies can now raise funds through an STO (Security Tokens Offering) in order to finance their growth. A difficult and costly process before, but now becoming frictionless. The Swiss based venture capital fund Blue Ocean is a great example.
Security Tokens will foster a new thriving economy for innovation and growth while heavily rewarding early believers in the project.
Let’s make securities frictionless!
Website: http://www.ledgity.com/
