Venture capital (VC) is a type of private equity, a form of financing provided by firms or funds to small, early-stage and emerging firms that are deemed to have a high growth potential, or which have already demonstrated high growth. VC firms or funds invest in firms in exchange for equity, or an ownership stake, in the companies they invest in.
The venture capital funding pattern has changed and gained popularity in different countries over the years. It enabled hundreds of technological breakthroughs and helped many successful companies of today’s era shape the world we know. The industry has reportedly trebled in size to $160bn over the last decade.
Problems Faced by VC Industry
Despite of the benefits offered by the industry, there are various shortcoming which are not hidden from anyone. From a long time, the VC industry is stuck in a selective and small group closed for majority of regular investors. The major drawbacks of the industry are:
Barriers to Entry: Investing into a VC fund requires at least $1mn in capital and for most “outsiders” it is nearly impossible to get in. Even when you are looking to invest individually, an general commit of around $100k is required per single investment and one has to bare a high diversification risk.
Complex Environment: VC investing is not a piece of cake, it requires top notch market expertise and strong networks in the industry in order to assess and manage quality investments.
Locked Capital: It takes an average of 10-12 years for a VC fund to return capital to their investors. Even in the case of individual investments an exit before 5-7 years is very unlikely.
Solutions Offered by VNX
The one major than that can solve a lot of VC problems is ‘liquidity.’ A flexible liquidity can unlock new horizons of the market for existing customers and make way for new investors to enter. Now, Luxembourg based firm VNX Exchange is the first marketplace and trading platform for tokenized venture capital assets. Their decentralized platform provides investors quicker time to liquidity, more cash for operations and makes it easier to raise new funds.
STOupdates got in touch with Alexander Tkachenko, VNX Exchange Founder and CEO to know more about how VNX is aiming to shape a new future for VC industry.
What impact will VNX have on investor portfolios, and how will the platform change traditional investment methods?
The VC industry is known to be difficult to enter, so VNX’s goal is to make it more inclusive for investors. By tokenizing their investments and making them tradable on a liquid secondary market, VC fund managers will be able to attract a much wider audience and significantly reduce locked-in capital for existing investors.
How will VNX offer a fully regulatory compliant trading platform?
We plan to develop the whole platform infrastructure and services that will allow us to become a fully regulated exchange in the EU. For the moment we are in the process of filing for a license in Luxembourg with the CSSF (Commission de Surveillance du Secteur Financier). We are also working closely with leading advisors and lawyers – Elvinger Hoss, which team is led by Luc Frieden, former Luxembourg Minister of Finance and Minister of Justice.
Liquidity is one of the major problems for VC industry, how does VNX help in solving this problem?
VNX Exchange is a marketplace that boosts liquidity for VCs in return for a share in future profits. This could eventually improve the capital velocity and economics of VC investing, reducing capital lock-in from 10-12 years to just two-three years, and making venture investment more attractive as an asset class.
VNX will Kickstart a New Era for Investments and Entrepreneurship
What is the Unique Selling Point (USP) of VNX, and what makes the platform different from other competitors?
VNX Exchange operates as a marketplace that allows VCs to get additional liquidity in exchange for a share in future profits. This eventually improves the capital velocity and economics of VC investing, reducing capital lock-in from 10-12 years to just two-three years, making venture investment more attractive as an asset class and opening it up to a much wider global audience.
We also believe that the use of blockchain technology and asset tokenization offers many added benefits compared to how traditional capital markets operate, such as reduced dependence on intermediaries, share depositories, clearing houses, transfer agents, custodial providers, and more. It offers a significant level of automation for multiple steps in the value chain; for instance, paying out of income to VC token holders can be fully automated through smart contracts and blockchain wallets. We also see it helping with enhanced security and transparency.
All of this will allow VNX Exchange to become a real innovator in the industry by providing the best-fit solution for every party: VC funds, startups, and investors. This, in turn, should boost the whole VC industry and create momentum for entrepreneurship around the world.
VNX has partnered with NEM to generate protocols and standards for security tokens, any updates regrading the development?
Together with NEM we are working on the development of a liquidity program to encourage VC funds to invest in startups involved in the NEM ecosystem. VC funds will be able to participate in initial digital asset offerings on the VNX platform, achieving optimal liquidity. NEM’s own cryptocurrency XEM will be offered as one of the currencies on VNX.
VNX to set a new standard for Security, Reliability and Usability
What strategies are you planning to use to attract new traders and investors on the VNX platform?
One of the key strategies will be to give our customers a level of security, reliability, and usability that will surpass existing market platforms. This means that our marketplace will be properly regulated and built with the highest degree of security and trust.
Where do you see VNX in next five years and what do you think is your biggest challenge?
VNX will capitalize on the best of both worlds (VC and blockchain) by combining liquidity, a broad investor base, free flow of capital, and low barriers for entry to blockchain with professional expertise and governance standards developed over many years by the VC industry. Our mission to make it simple and affordable for any VC investor or accelerator to make their investment portfolios liquid and thus access more capital, while allowing almost anyone, be it a large financial institution or a regular private investor, to invest in the future “Ubers” and “Teslas” of the world. Essentially, we are using blockchain to unlock the $1tn+ venture capital market and by increasing capital velocity make it accessible to millions of investors, providing an impetus for the development of technology innovation, and entrepreneurship around the world.
We believe that important triggers for VC development might be new formats of cooperation with industry peers and partners, that’s why VNX Exchange is all about encouraging entrepreneurship, which requires fostering a culture of risk-taking and facilitating access to VC. By creating a regulatory compliant and secure marketplace, VNX Exchange aims to reduce barriers for regular investors and unlock venture capital as an asset class to a much wider number of investors.
As for challenges – it’s important to stay in touch with regulators. Proper licensing seems to be one of the key requirements for a large-scale adoption of the platform by VCs and investors. Additionally, the blockchain industry needs to continue driving the technology’s research and development and share their cumulative knowledge through a strong, global open-source development culture.
The platform offered by VNX exchange sounds really promising and aims to enhance and strengthen the already huge VC industry. The company has been considered to be one of the key financial infrastructures in Luxembourg, and is also a member of the Luxembourg House of Financial Technology (LHoFT). The firm has built partnerships with key industry institutions and deserves that we keep an eye on its future developments.
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