Most startup ideas arise from market challenges. VNX Exchange was no different. While serving as Managing Partner of 2be.lu venture fund, Alexander Tkachenko realized that venture capital investments are locked up for long periods of time and exclude a wide range of investors. That is when he asked the game-changing question: “How can we bring liquidity to the venture capital market?”
This simple inquiry sent Alexander Tkachenko on a journey toward the creation of an entirely new asset class.
When blockchain entered the scene, the answer to the VC market’s low liquidity conundrum slowly came into focus. He would create a marketplace that allows venture capital funds and accelerators to issue tokens linked to their portfolio revenues — tokens that could be purchased by anyone.
“After sitting down with lawyers, we realized that this was possible, both technically and legally,” said Tkachenko, founder and CEO of VNX Exchange. “We knew we could really solve an issue for an entire industry with our innovative solution.”
”The modern VC investment space as we know it remains fairly unchanged since it took hold in the US roughly four decades ago. Mainstream investors have kept their distance, and it continues to be the almost exclusive territory of professional venture capitalists and their high-value funds.
A rise in startup crowdfunding platforms shows that a lack of interest is not the reason they stay away.
“We are living in a time when the power is being shifted to the masses. ‘Uberization’ is one of the key trends that is now implemented in various segments of the economy,” Tkachenko explained. “Crowdfunding represents the same trend, and we are ready to professionalize the space.”
High minimums, complex structures, significant risk levels, and slow returns are the real culprits keeping out the majority of interested individuals.
VNX Exchange addresses these hurdles and transforms the VC market in two critical ways: (1) by bringing liquidity to large investors as they wait 10-15 years for the fund’s capital returns, and (2) letting the average person invest in those funds by buying tokens.
In true symbiotic fashion, opening up VC funds to small-scale, regular investors creates liquidity for the professional, multimillion-euro investors awaiting their returns. The wealth and knowledge contributed by these serious, early venture capitalists is essential, but keeping them sitting around in liquidity limbo hurts everyone.
By taking the initial plunge as the fund’s main contributors, these VC investors can then sell the public a much less risky product on the VNX Marketplace in small amounts via tokens, thanks to blockchain technology. So, venture capitalists get the cash to continue with what they do best —investing in startups— and small or hobby investors get the chance to dabble in the VC market for the first time since its inception.
Startups also benefit since their potential investors will have full pockets again, instead of being stuck waiting on returns.
“VC investing is still pretty similar to an artisanal business,” Tkachenko added. “By bringing structure and rigor, our marketplace could increase the amount of money being allocated by financial investors into this asset class.”
VNX Exchange’s vetting of each portfolio will include official confirmations from third-party law firms that have assessed its framework and legality. An auditor also needs to approve that the issuer employed a sound asset valuation method.
In addition to tackling the risks associated with portfolios, the company is working with legal experts to make sure that the platform is fit for hobby investors.
Part of Luxembourg’s draw for VNX Exchange — built on a combination of complex legal, regulatory, and technological solutions — was the high-quality ecosystem of lawyers, accountants, and banks that come with a world-leading financial hub.
“The ecosystem we have here in Luxembourg is phenomenal. From the technical side, we have great support from the University of Luxembourg. Governmental agencies are very loyal and open to discussing issues. The LHoFT provides fantastic opportunities,” Tkachenko said. “It seems like Luxembourg is one of the best places in the world to start a fintech company.”
The stage is set to open up the startup dream to regular investors. Doing so involves the introduction of a new asset class, but the burden of customer education is counterbalanced by the public’s readiness.
To grasp its potential, the world can look to a host of real-life success stories from VC-funded startups. The popularity of the VC concept is evident in television shows, books, and podcasts. Audiences are already familiar with the subject and many would get involved if given the chance.
The marketplace’s launch, scheduled for the second half of 2019, hinges on effective cooperation with regulators and lawyers. VNX will first target qualified investors, but the long-term goal is to open the platform up to the masses. In order to achieve this, it will continue relying on key trends and innovations to bring many moving parts into one, integrated solution.
“Creating an asset class is a big challenge,” Alexander Tkachenko concluded. “Technical achievements are nothing if they’re not supported by the solid collaboration of the regulator, legal team and funds. Many pieces of the puzzle have to come together to make the marketplace work.”
When the pieces of the puzzle do come together, it will unlock liquidity for the global VC industry by opening it up to the masses.
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