$1 Trillion of VC investments to become liquid through tokenisation
Institutional and large capital investors are increasingly looking at the crypto market as a way of finding new investment opportunities, as well as solving issues they are facing in traditional markets.
Take venture funds for example; investors have to commit their investments to sit in a startup for between 3-7 years, and an estimated $1 trillion is currently held in such a manner, with no room for movement. This results in a situation where profitability is reduced as well as the overall efficiency of their holding. Of course, if the project is successful, the investor is set to receive excess profit but there is never a guarantee of the project meeting the yield expectations, let alone getting back the funds that were invested in it.
Venture capitalists are always treading a fine line because if the project fails they lose everything they invested, but just the fact that they are investing for long periods of time means that they miss out on other opportunities to generate revenue.
A study was conducted by Cambridge Associates that looked at the performance of 27,000 venture startups over the last 20 years. It was found that the amount of venture projects that returned less or the actual amount of invested capital never exceeded 60%. So let us consider that out of the $1 trillion of investments, 60% will return the amount invested in seven years, this could take $600 billion away from the global economy.
The tokenisation of venture projects could offer a solution to issues surrounding liquidity, as well as reducing the risk of investors and making VC assets more attractive. Security tokens can offer investors a range of financial right such as dividends, equity, a share in profits, voting rights, and buy-back rights. These transactions can be completed over the blockchain and crypto investors would be able to gain access via depositories or wallets that are registered in a decentralised ledger.
This development of tokenised venture assets is already well under way and one company, VNX Exchange in collaboration with ADDCAPITAL are planning to issue tokens for $20 to finance venture products. They will also be used to create high yield projects, allow early venture capital withdrawal, and greatly expand the range of qualified venture investors that have the possibility of investing.
It is believed that such new dynamics would have an extremely positive impact on the development of startups, change the culture of investing and fundraising for entrepreneurs, and significantly boost the global economy.