If Traditional Venture Capital is Broken, Could Blockchain be the Solution?
Hype aside, blockchain carries some significantly positive implications for fundraising.
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Is traditional venture capital really a living relic? More than a few experts think so, and many have thought so for some time. Why, and how, did it stop working for us? That answer depends on who you ask.
One answer is that the number of funds for venture capitalists to choose from has skyrocketed. Barriers to entry have come way down, thanks to better and cheaper technologies, as well as innovation within the VC industry including the popularity of accelerators like Y Combinator and the many available crowd-funding platforms, like Kickstarter and Indiegogo crowd-funding platform. Legislation has also played a part, as has the decade of fallout from the 2008 global financial crisis.
But what is the actual problem? Why do we refer to venture capital as a 'broken' system?
It's a good question. After all, venture capitalists are making money and the startup industry is booming. But that's exactly it - with so many startups out there, why aren't we seeing more innovation and disruption? Given that the technology is certainly available, why doesn't the entire globe have access to clean, fresh water, for example?
It seems like investors are simply focusing on the wrong ideas, betting solely on big returns (that part, at least, is unsurprising). Meanwhile, potential solutions to problems that are both immediate and global are going completely under-funded.
Both of these observations are evidenced by the fact that less than 10% of unicorn companies worldwide (privately held firms valued at $1 billion or more) are in energy, agriculture, and health -- industries that account for the lion's share of global spending.
Can blockchain crack the case?
Blockchain technology is changing the way we do all kinds of business. Why can't it change the way we invest, too? CityBlock Capital is one company hoping it will.
CityBlock is providing a new option for retail investors in the form of freely tradeable, digital shares with low investment minimums, run by Managing Partners Jon Avidor and Rob Nance. Avidor weighed in on the positive implications that blockchain can bring for anyone seeking funding,
"Blockchain has created a fluidity of capital at the retail level which only previously existed at the highest rungs of international finance. The decentralization of transaction validation has led to the creation of a new digital asset class which utilizes smart contracts to eliminate the need for central intermediaries and record-keepers. The result is greater liquidity and access."
Without a doubt, it remains to be seen what effect blockchain will have on venture capitalism. What we do know is that, when it comes to the blockchain, no one is in charge, because everyone is in charge, and in an investment sphere that seems to be suffocating for lack of innovation, that might not be a bad thing.
There are big problems to be solved -- and many of them are being solved -- but fundamental issues with our approach to finance and investment are getting in the way of the solutions being implemented.