Blockchain-enabled Crowdfunding – an Opportunity at Risk
There is no question of whether the regulation of blockchain-enabled funding will arrive or not. The only question is how effective or ineffective it will be. However, despite the division of perceptions, it is up to us to come together as a community and shape its course.
This week I participated in the “Digital Shapers Workshop” along with 70 digital shapers and corporate leaders in the capital of Switzerland, Bern. It was an event organized by DigitalSwitzerland – an entity endowed with the goal of driving innovation and digitalization in Switzerland, supported by politicians and CEOs of largest Swiss companies and banks.
Every year the leading Swiss management magazine “Bilanz” nominates the top 100 people of the country in various verticals ranging from finance, entrepreneurship and digital.
This year, the nomination jury selected the 100 “Digital Shapers” in different sub-categories: from “investors” to “hope-carrier”. I felt very honored as I learnt that I was nominated in the latter category. Additionally, it was a testament to the ambitious work I had done to bring about transformative regulatory change for Bitcoin while working with Xapo in Switzerland. This nomination was both an inspiring and motivating reminder that we can change things even if it is about breaking through the walls of financial regulation.
initiative. In 2015 while at WEF in Davos, Walder asked CEOs of leading Swiss companies whether they felt prepared for the coming digitalization challenge and if they were ready to commit resources to drive innovation in Switzerland. They all unanimously agreed and thus Zurich2020, later renamed DigitalSwitzerland, was born.
At the very first Investor Summit in January 2016 staged by DigitalSwitzerland, Marc Walder opened with inspiring speech in which he stressed the importance of having a vibrant start-up ecosystem to maintain standing in the global innovation race. Fortunately, lately I learnt that all this was not just words. Digital Switzerland played a crucial role in supporting Xapo along the regulatory process.
Now that Switzerland has committed to the support of the start-up ecosystem, I am hoping that the positive attention will turn to that of blockchain-based crowdfunding. Given the huge potential of this funding channel, there is much at stake.
Crypto-currency-enabled crowdfunding provides the opportunity for aspiring entrepreneurs across the globe to start their business in any place. In essence, it removes the need to be in Silicon Valley/US to be able to raise funds beyond the seed stage. In particular here in Europe, this new funding mechanism is a great solution to our enduring lack of growth capital. The capital shortfall (the difference between VC capital invested in European startups and VC funds raised in Europe) was reaching 6 billion USD just a several years ago. Only the half of the capital invested in European startups was raised in Europe.
This is a big problem for most countries in Europe. Here in Switzerland, there are several initiatives targeted at solving this problem. The most notable one is the establishment of the 500 million heavy Zukunftsfonds (Future Fund) led by parliament member Ruedi Noser and renown lawyer Christian Wenger.
Now let us have a look at crowdfunding in Switzerland. Last year in Switzerland, startup funding raised through crowdfunding reached 6,8 million CHF – a huge breakthrough and great achievement.
The following year, crowdfunding raised through the token issuance in the same country was 100 times more, reaching about 700 million CHF. It is an incredible development which you rarely see with any kind of funding related dynamics. The crowdfunding as we know it, before ICO arrived, was a pitiful 1% of what was raised in a crypto-currency-enabled crowdfunding this year.
This new funding channel is a big incentive for start-up ecosystem in Europe. For the first time, instead of thinking they need to ‘go west’ they can stay at home without risking their future.
An opportunity at risk
Yet, this great opportunity can vanish if we do not proactively steer its future. Many describe ICO phenomenon as the bubble and illegal activity. Other voices, especially those in large corporations and banks are not as excited about this development at all. The predominant narratives is about how to limit and regulate.
While I am in agreement that there needs to be clear rules to prevent money laundering and Ponzi schemes, I believer there also needs to be a progressive reform of crowdfunding rules which acknowledges the evolution of crowdfunding mechanism. Blockchain and crypto currencies is rapidly evolving and old rules and processes no longer hold true.
And so you read it everywhere. In the public debate, there are two sides to ICO debate:
- Dangerous and illegal – needed to put into control
- Opportunity to solve the desperate funding problem
At the “Digital Shapers Workshop” there were several working groups dedicated to regulation, innovation, society and cyber security. The outcomes were very different. In the working group where I contributed, the major focus was on growth capital. There were 3 suggested measures:
- To simplify the regulatory requirements for VC funds below 250m
- To support better promotion and communication of Swiss start-ups abroad
- To channel part of pension funds into start-up funding
The last one, creating a regulatory framework around allocation of pension funds to start-ups is a novel idea. While 800 billion CHF are managed there, dedicating even a tiny proportion of it will represent a huge boost to a start-up creation here – a great growth capital resource for sure.
While presenting the results of our working group, I pointed out that the goal of 500 million risk capital dedicated to information technology start-ups can be easily achieved if we find the right way to capitalize on recent breakthrough in crowdfunding. It’s a great new opportunity to finance innovation and the time is right.
For many of us, this will be the opportunity of our life. The opportunity to become an entrepreneur. The opportunity to take your own destiny into your hands. For many women like me it will be first ever chance to found a startups and secure funding. Today only 2% of VC funding is going to women founders. And, in traditional VC field, it is not getting better. On contrary it is getting worse. The blockchain-enabled crowdfunding is a remarkable break away from this trend. This year five women alone raised around half a billion dollars in ICO – a real Game Changer.
That is why our participation in the regulatory discussions need to begin now. There is an urgent need to drive the positive narrative around blockchain-enables crowdfunding. Now is the time to act!