EQUI
Blockchain: An evolution in venture capital investment
Blockchain technology is a transparent digital ledger of transactions and records that are immune to change or deletion. Offering additional traits of increased security, lower costs, time efficiency, and error resistance, blockchain has seen a rapid rise in interest during 2017. The utility of blockchain technology is limitless, sparking the growing list of companies, industries, and governments exploring its potential adoption.
Over two million people tune in each week to watch the UK’s top entrepreneurs and inventors pitch their latest ideastoa group of high net worth individuals on BBC’s Dragon’s Den. What we are watching is venture capital in action, albeit repurposed as entertainment with a few details missing. However, the goals are the same: high-growth start-ups looking for investment and mentorship.
Venture Capital (VC) traces its roots to Silicon Valley and the emergence of the modern tech industry. An early example of VC investment came in 1977 when Mike Markkula invested $250,000 for a 30% equity stake in a little-known start-up called Apple — now the most valuable company in the world by market capitalisation. Venture Capital in the form of early stage seed investment has enabled many of the most disruptive (and valuable) start-ups to exist today.
Crowdfunding is the answer?
In recent years, crowdfunding has opened up access forstart-upbusinesses to obtain cash for proposed projects. In many ways, it has been a stepping stone to the future and opened the eyes of millions of potential investors to the advantages of early-stage investment and direct access to company founders. To date, $3.5 billion has been invested into around 140,000 different projects on crowdfunding platform Kickstarter alone. However, Kickstarter’s mission is to bring creative projects to life — it’s not a financial investment platform and rewards are not monetary. What crowdfunding did do is set the scene for a new way of investing.
In 2017 we saw the meteoric rise of the Initial Coin Offering (ICO). As opposed to traditional crowdfunding where the investments are usually considered a donation or pre-buy of a product, ICOs offers supporters the opportunity to buy a digital token, underpinned by blockchain, that has value in a new eco-system. The plan is that as demand and use of that new eco-system increases, the digital tokens will rise in value.
The reason ICOs are so popular is the fact that the cryptocurrencies created by ICOs are instantly liquid, they can be exchanged between individuals and traded on exchanges. Furthermore, the blockchain technology that underpins ICOs is hugely disruptive. In the same way that the internet can be considered a decentralised store of information, the blockchain is a decentralised store of value.
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