Digitizing a startup. How tokenization will let venture investors make more money

September 24, 2018

A new approach will give liquidity to assets worth $1 trillion currently “frozen” in VC funds.


The investment fund Addcapital and the Luxembourgish digital asset exchange platform VNX Exchange announced an agreement on listing of $20 million worth tokenized VC assets to raise fund’s liquidity. This was disclosed at the round table dedicated to the future of financial markets and state regulation of digital financial assets (DFAs), which was held at the Moscow Stock Exchange on September 20. Startup Bootcamp and other European accelerators and VC funds will be the first issuers to “tokenize” their portfolios on VNX Exchange.


This is one of the first cases of applying blockchain technologies to the venture capital industry. Despite the many ideas of how to use distributed ledgers, few of these concepts have found any practical application. Most often, the crypto community is quite isolated from real-life businesses.


“When investing in startups, VCs and private investors are locking in their money for several years – until they are able to exit from these investments. About a trillion dollars is almost frozen. The new platform is an attempt to make these assets liquid,” – Vladimir Khanumyan, Chairman of the Board of Directors of VNX Exchange, commented on the prospects of the new solution.


Alexander Tkachenko, Founder of VNX Exchange, explained that the objective is to create a marketplace, a platform where funds could tokenize their portfolios. Using a licensed platform will make the listed assets more secure because there will be no way to deny responsibility in case assets are stolen or disappear.


Tkachenko admits that funds may find working with new instruments rather difficult as they have no approved methodology for assessing tokenized assets. This is why he expects that the first to invest in tokezined portfolios will be crypto investors and crypto funds because they are used to such transactions and know how to calculate risks and returns.


Konstantin Vinogradov, Senior Associate at Runa Capital venture capital fund, was sceptical about the new instrument: “I don’t see any point in tokenizing a fund, except for a marketing component.”


Vinogradov thinks that tokenization doesn’t solve the problem of assessing venture funds’ assets. He points out that due to the currently complicated assessment procedure funds usually attract money in the beginning of the life cycle only, instead of during the entire lifecycle of the fund. At the same time, shares in good funds are liquid: investors can resell their stakes to other investors, if needed.


Vladimir Smerkis, Co-founder and Managing Partner, Tokenbox, is optimistic about the new instrument. He agrees with VNX that venture investments are often illiquid – it’s rather hard to exit until a new round. Tokenization enables investors to enter a project by ensuring liquidity of the fund’s assets.


Smerkis points out that a VC fund to which the investors commit their capital is tokenized “in a closed perimeter” so that tokens become, in fact, securities which you can buy – or sell to other accredited investors.


He thinks that the technical mechanism is just excellent, and nowthere’s a legal framework for it. It’s essential, however, for the market to get real players – those who will actually buy and sell tokens of various companies at the newly established platform.


VNX Exchange will operate under the legislation of Luxembourg as this country has the most appropriate legislative framework and a sufficient number of partners knowledgeable about working in Luxembourg’s legal system. In Russia the legislation so far remains unfavourable for such instruments. However, Sergey Polikanov, Executive Director, Sberbank, says that legislative amendments to allow attracting funds in the form of digital assets are being prepared. If they are adopted, then startups, for example, will be able to attract funds at Series B and C rounds which are hardly ever financed in Russia.


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