• 06 April 2021
  • Announcements

Is Venture Round Funding Still Fit For Purpose?

Blog Bild

Venture capitalist funding has been around for a very long time, so it’s easy to see why so many people would ever seek out sources of funding anywhere else. Times have changed, however, and the beauty of the Blockchain has allowed for quick, easy and secure transactions to be carried out transparently, all at minimal cost. This is ideal for raising capital for ICOs, where time is of the essence and the competition is fierce. The venture round approach simply isn’t cut out for the breakneck pace required. Even for those fortunate enough to count several semi-interested investors in their wider circle, simple decisions can take months to arrive at. And even then, the next round of negotiation might drag out even longer.

More ICO Advantages

As opposed to the drawn out process of the venture round model, an ICO keeps things simple and tangible. Tokens can be issued in regards to a specific deal. Interested parties can choose to accept or refuse. It’s a straightforward trade-off that just works. It also represents a more relevant and quantifiable asset value. When it comes assets and private equity, it’s not uncommon for the minds behind some of the biggest leaps forward to find it nigh on impossible to enjoy the wealth their innovation has accumulated. An old saying goes “He Who Dares, Wins”, but don’t be surprised to find the man who’s taken the biggest gambit, laid out the largest sums and devoted the most time to be falling far behind his peers in the world of business. At least for the first decade or so.

Ever had a friend who’s risked it all to found a company, only for them to succeed? Ever had the ear of a CEO you’ve worked under? How many of those waxed lyrical about their mountainous fortunes and frivolous spending? The answer’s probably very few and nothing to do with humility. Instead, perhaps you’ve heard a tale of a business success story about a company that’s been on the rise for years. Where company valuations mentioned? Seven-figure sums seem about right. It’s hard to imagine anything but the sunshine and roses for those lucky few. But when you dig a little deeper into the lives of startup founders, you might find a brilliant brain responsible for something truly revolutionary is caught in a cash-strapped limbo. It’s a shame, but plenty of bright young things and startup founders have suffered at the hands of venture round funding. Many remain on extremely modest salaries for far too long, even if a business has gone from startup to a global brand.

It’s not hard to see why some startup founders are trying to think outside the box when it comes to claiming a little back from the business beasts they helped bring to fruition. In theory, a founder could look at turning a portion of company equity into a token value on the Blockchain. That liquidity hurdle is no longer something to worry about then. Once this has been carried out, a simple token offering to prospective investors is all that needs to occur in order to start seeing results. It’s easy to see why such a tactic is so enticing.

The Trouble with Tokens

When it comes to initial coin offerings, tokens are a staple. They’re not an entirely welcome thing however and much discussion has arisen regarding the true economic worth of them. This point is easily underlined if you consider a potential startup business that’s decided to develop its own token. One founder might look to this token with a long-term plan in place. Another might be more interested in seeing said token gain value over time. These two are at instant odds with the other. There might also be additional parties who yearn for less consistently when it comes to cost. It’s not hard to imagine all manner of conflict in the pipeline.

Equity Tokens as an Alternative

Equity tokens help overcome the potential issues outlined previously. Instead of them serving as a cryptocurrency, they denote ownership. It’s simpler to imagine them as a form of shares option. In fact, they can be used to represent shareholder rights in some instances. It might sound like these tokens are causing new problems to replace the ones they dispersed, but the additional utility function of the equity token overcomes this.

Equity Token Offering and Utility Functions

In the case of an Equity Token Offering, the total or a portion of the share capital of a business is illustrated in token form on the Blockchain. There’s also the option to add utility functions to equity tokens, so long as issuing occurs on the Blockchain. It’s a thrilling idea, combining some of the best features from initial public offerings, initial coin offerings and conventional venture funding rounds. Even companies who aren’t on the Blockchain can get involved. Certain companies can have equity tokenized, for example.

Turning Company Shares to Tokens

Many people are becoming interested in tokenizing company shares on the chain. To kick things off, all a company needs to do is reconfigure to a set of terms and conditions. Once this has been agreed upon, an investment agreement is automatically generated, with the document signed between a nominee and the company itself.

The nominee in this equation serves as the common ground between companies on the Blockchain and companies that aren’t. The nominee generally ensures that shareholder rights are being correctly observed, although there’s some deviation in process depending on where you are in the world. Expect more commonality between territories in the next few years as tokenization becomes a more conventional company endeavour. By the time smart contracts are generated, ownership rights of shareholders on and off the chain are assured. Also, bear in mind that the tiered structure of the process means contracts are signed numerous times, bolstering the rights of any shareholders still expressing reservation. It’s a significant sign that the world of cryptographic currency is becoming more widely accepted, without high levels of mistrust getting in the way of progress.