Blockchain is an innovative tech solution that has hugely changed the way new businesses emerge within a variety of industries. The financial sector specifically has seen a significant evolution with the adoption of Blockchain, the latter representing a most fast and secure way of transferring funds without the necessity of third party intermediaries. It is exactly that element of decentralization that has been encouraging more and more individuals to apply it to their everyday workload. Especially those who are just starting out with a new business venture and looking for funding, but that don’t want to go through lengthy and outdated means of raising those necessary funds.
Security Token Offerings (STO) represents one of the rising new ways to rise the necessary funding for startups involved with the cryptocurrency and Blockchain sector. At the base of their attractive qualities there are the wide access they offer to global capital, the multitude options to market offerings and a low cost of entry. Providing additionally a secure platform for investors, they are estimated to keep on growing estimated to keep on massive opportunities for the next years. At the same time, not all startups would want to run an STO by themselves and risk having to face every aspect of it on their own, leading them to seek out other ways to reach funding for their business venture.
The necessity of a change
It is at that point that another change needs to happen, one that involves an industry such as the venture capital one to adopt Blockchain and combine the good aspects out of the two. As more and more startups come up with innovative ideas, VC has not been able to keep up and provide all the necessary liquidity for every business that demonstrates long-term growth potential. Blockchain would be able to solve that problem by offering much more liquid funds via the issuing of tokens that can consequently be traded on cryptocurrencies exchanges. This first step can be revolutionary in the way investors can pursue investments in many new technologies such as Artificial Intelligence, the Internet of Things, cyber security and more.
Despite the potential foreseen by combining Blockchain with VC, only a few have so far invested in crypto or plan to get involved at all with this digital currency alternative. At the same time, this new tech has been leaving a huge positive impact on other industries, generating equity opportunities for both traditional and new investors. Those who were the early adopters, have seen the improvement in efficiency, security and reliability, and with more following their steps, crypto and Blockchain keep on growing exponentially. It seems especially important for Venture Capitalists to start getting involved now, as the funds raised by Blockchain startups via ICOs have already hugely surpassed the number of VC investments made in that sector.
From the point of view of the investors, this change would match the exact reason why individuals have approached investing from the start. Those interested in venture capital aim to use their funds to support innovation and creativity within technology, no matter the level of risk as they can usually afford it. Meaning that a shift towards an innovative solution such as Blockchain would be a transformation but also a step forward into a world where investments are more equal, stay within regulations and could even raise the interest over this type of investments. Leading to a significant growth and increased liquidity that benefits both the startups and the investors.
Tokens as new funding means
Tokens represent units that can be traded between individuals and that play an essential part within the crypto sector. The so called “security tokens” are part of the digital tokenization offered by Blockchain, and can be used as a proof of ownership in any asset. Via tokenization, those commodities that are thought of as illiquid turn liquid and easy to trade. Without that switch to liquidity, investors would lack of as many opportunities to increase profits, following a traditional model that is meant to be disrupted by Blockchain. One of the advantages of cryptocurrency, is the possibility of holding tokens as part of portfolios and trade them whenever preferred, instead of playing a waiting game with the startup as investors see whether or not it will become successful. While tokens also give the opportunity to invest in a liquid environment while keeping the chance of exiting faster.
This alternative model based on tokens would not only help profit, but also change the way the Venture Capital industry can be accessed. Thanks to the liquidity of the asset, more investors with the necessary skills and determination required to make it in this sector can afford to take part. Meaning that this revolution would bring an end to the strict requirement of starting out with an initial commitment that would be between 3 to 5 years. Following the way ICOs have opened up the chance of investing to anyone, even VC can benefit from allowing for new individuals to get involved.
Crowdnext is a venture capital firm that plans to help VC with Blockchain adoption by focusing on offering innovative investment options. The latter can be especially needed for those startups that are looking for funding but would rather go another way than by launching an ICO, while also helping investors make wiser choices. This firm has worked on developing an algorithm capable of specifically identifying the startups that have the necessary potential to make it within the industry, meaning that investors can make more accurate decisions on whether to invest or not. Compared to traditional VC, an investor would also be able to capitalize on any gains from that investment early on, as the tokens can be easily exchanged before fully exiting.
That different approach from ICO investment cuts down on the losses coming from startups who, despite being funded, fail to make it to the next stages. Allowing for a clear determination of value and a higher chance of return.
Over the first three quarters of 2018, the venture capital investment in these industries of Blockchain and crypto has suddenly tripled, demonstrating that more investors would like to welcome this change over sticking to more traditional routes. As Blockchain startups continue to perform impressively and deliver new tech solutions, investors would find an advantage in consequently taking part in supporting those emerging successes. This shift to more digital and modern solutions will keep increasing, as Blockchain continues being applied to more industries. Meaning that a sector such as Venture Capital needs to keep up with this change to not risk being forgotten over this huge transformation in the way startups look for funding.