VNX Exchange as a Use Case of Tokenizing Venture Capital

VNX Exchange took part in the Infrachain Summit that was held in Luxembourg on May 23. Infrachain Summit is a gathering dedicated to blockchain topics where governance meets technology and compliance meets operations. The event focuses on the governance and compliance of blockchain as well as technical aspects of using it. The summit involved presentations from leading participants of Luxembourg’s blockchain ecosystem who talked about real-life uses cases of blockchain. Anton Abashkin, VNX Exchange COO, talked about VNX Exchange as a pioneering use case of tokenizing venture capital on the blockchain.

Here are some of the highlights from Anton’s speech.

VNX is developing a marketplace for tokenized venture capital funds. It offers a tremendous opportunity to demonstrate that tokenization as a concept can be applied in a way that addresses the regulatory and usability challenges that exist within blockchain and crypto assets.

Venture capital as an asset class is very attractive with higher than average returns. Roughly 1 in 10 VC deals is generating returns of over 5x to their investors, while so-called “moonshots” can return 50-70x invested capital.

Venture capital serves as a bridge between the old and new financial markets. However, the biggest challenge with VC is its lack of liquidity: 10 years ago the average investment cycle was 8 to 10 years, while today it has increased to 12-15 years, because companies take longer to make an exit and continue financing their business through late stage private capital that is now available to them more than ever. Additionally, investing into a private company requires writing a multi-million-dollar check and some rough competition making access to this asset class extremely prohibitive. VNX aims to solve these two problems by creating a liquid secondary market and providing access to venture capital to a broad pool of investors.

As a digital asset marketplace for venture capital investments, VNX Exchange tokenizes VC funds’ startup portfolios. Here’s how this works. 

Protecting investors is the most critical and important aspect of what VNX Exchange does. VNX Exchange focuses on venture capital funds because they provide protection by virtue of managing their investment portfolios, providing due diligence and carefully monitoring the companies they invest in. This offers important layers of governance and protection. VNX Exchange introduces only carefully selected portfolios which are meticulously reviewed by reputable consultancies.

The second step is packaging the VC portfolio, which involves preparing the investor materials and introducing these assets to investors. The onboarding process involves preparing the offering memorandum and marketing materials. The platform’s mission is to make this process as efficient as possible when tokenizing VC funds’ startup portfolios and holding an equivalent of a roadshow.

The third step involves the initial offering. After the assets have been digitally created, investors submit their bids which are recorded on blockchain. An auction is held after the book closes determining the closing price and the winning bidders. Following the auction, all payments are settled and digital assets are distributed to the investors.

VNX Exchange wants to make the process of accessing these new digital assets more transparent with the help of blockchain. The platform uses the public Ethereum blockchain to record and time stamp critical information such as investors’ bids during the initial offering process as well as maintaining the assets themselves through issuing pre-programmed security tokens that allow to track ownership. VNX Exchange is working with the University of Luxembourg’s SnT to make sure that the solution is robust, secure and compliant with existing EU data protection regulation.

After the offering is complete and the digital assets are distributed to initial investors, they are listed and admitted to trading at VNX’s secondary market – a trading platform, where a diverse range of institutional and private investors can trade these assets and obtain real liquidity.