How Blockchain will evolve Crowdfunding and disrupt Venture Capital

Although it never really took off properly in terms of capital raised or mass adoption, Equity Crowdfunding is not exactly a novelty. One of the drawbacks of a Crowdfunding investment is the lack of a proper and well-established secondary market, making it very difficult not just to early liquidate your investment if the funds are needed but also to have a transparent and reliable pricing.

The concept of ICO is not new either but we have seen an explosive growth of the phenomenon during 2017, in particular the amount of found sourced through ICO surpassed a billion USD already in the first half of 2017[1] (to put the figure into prospective, a total 738.9 million USD was raised through traditional Crowdfunding in 2016).[2]

Being the ICO Crowdfunding less mature than the traditional one, what we see at the moment is far from satisfying. Lack of transparency and zero protection for the investors make it the perfect ground for scammers and speculators. This situation brought an explicit ban in more than a few countries (most notably China and South Korea).[3] ICOs bring in any case a number of relevant advantages compared to the more traditional forms of founding. If we just focus on Equity Tokens, we have the transparency, immutability and safety of a Blockchain managed asset and the possibility to have the asset traded on multiple exchanges. This will unlock a number of other interesting possibilities such as easy creation of indexs, ETFs or funds.

A Crowdfunding platform that provides the service of token creation and management would merge the best of two worlds. First and foremost there will finally be some sort of due diligence on upcoming ICO, most of the reputable platforms already offer the due diligence directly or through external partners, often well-known academic incubators. The tokens will be liquid as soon as a stock exchange will list them (if not the platform itself), the Blockchain will de facto be the custodian of the assets, increasing transparency, trust and reducing costs for all the parties involved.

A Blockchain empowered Crowdfunding would leave the traditional Venture Capital approach with a very limited added value for the entrepreneurs mainly related to the know-how, experience and practical support that the firm can give to the entrepreneur.

As a matter of fact, services such as: project incubations, mentoring and networking can be acquired by the company directly on the market; a scaled up Crowdfunding platform will be well positioned to offer such services in house. Maybe what is most important is that the balance of power will shift back in favour of the entrepreneur with all the related (good or bad) consequences of the case.

As often happens with new technologies, innovation drives innovation, concepts like Swarm intelligence[4] and DAO[5] fit very well into a smart Blockchian empowered Crowdfunding platform, as main result this will additionally push in the direction of a more efficient fund allocation in respect to the traditional alternative investment vehicles.

[1] https://www.coindesk.com/ico-tracker/

[2] https://www.statista.com/statistics/360512/funds-raised-via-crowdfunding-globally/

[3] https://www.theverge.com/2017/9/29/16384718/south-korea-ban-initial-coin-offerings-bitcoin-cryptocurrency-icos

[4] https://en.wikipedia.org/wiki/Swarm_intelligence

[5] https://en.wikipedia.org/wiki/Decentralized_autonomous_organization

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