Ever tried to read a book using binoculars? That’s what it’s like for a new investor looking to make their mark in the world of venture capital. They’re focused on the long view and getting low-risk growth at scale.
But they can’t get going without first pinpointing precise, verifiable data on quality funds to invest in. Such detailed information is hard to see at best and often entirely absent.
Any VC who can’t present all the information clearly will be sidelined and ignored. Yet the VC can’t risk conducting due diligence for every seed investment. It’s a Catch-22. VCs thus need an efficient, secure and cost-effective method to attract capital for seed investments.
Traditional venture capital is deeply inefficient, cloaked in layers of secrecy and distrust. Yes, quality funds are there for the picking, but access to information about them is very limited. This is the result of a phenomenon known as information asymmetry, where certain investors have more or superior information compared to others.
To illustrate, general partners (GP) create exclusive investment circles for small handfuls of accredited, high-net-worth limited partners (LP). Within these circles, GPs grant LPs exclusive access to information and funds. Such circles also tend to operate on a standalone basis, focusing on specific geographical markets.
With information locked within these circles, it becomes difficult for external investors to access the corresponding funds. Deal flows end up confined within these tight investment circles, barring participation from external sources.
This is not how venture capital should work. Venture capital should be a free world where everyone, regardless of status and connections, has a fair chance to participate and prosper.
That is why we at Seedefy will harness the power of blockchain to decentralise venture capital. In turn, the once secretive, tight-knit VC community will be opened, transforming it into an inclusive, democratic space that accommodates founders, fledgling businesses, and investors alike.
Decentralisation is a concept that is intrinsically linked to blockchain, and it’s simple: instead of a single central authority monopolising control over the entire ecosystem, the control is instead transferred and redistributed to the community of like-minded stakeholders.
When you tie this concept of decentralisation to venture capital, entrepreneurs and innovators are presented with a novel, democratic way to raise funds. Apart from decentralisation, the other key merits of blockchain are also applied to venture capital, including:
Seedefy is working towards becoming one of the core pillars of blockchain: Decentralised Autonomous Organisation (DAO). We embody the principles of a typical DAO, where we are entirely community-led with no central authority in the picture.
With each iteration of our solution, our level of decentralisation deepens. Our immediate goal is to become a fully-fledged DAO for venture capital.
Unlike traditional venture capital, capital in a venture DAO is not confined to pension funds, endowment funds, and strategic corporate investors.
In a venture DAO, any cooperative in the world is theoretically enabled to start a venture fund, complete with verifiable and traceable digital tokens, which serve as the digital representation of assets like currencies, securities, and properties. Venture capital thus becomes more global, featuring a diverse set of members from various parts of the world.
It is these tokens that democratise the venture capital process. Used alongside fiat investments, these tokens serve as bargaining chips for entrepreneurs – regardless of their position and background – to secure introductions, advice, and other support.
They can also be earned as rewards for practices that bring value to the entire venture DAO, such as profit-sharing crowdfunding campaigns. This effectively encourages a freer flow of insights and ideas, benefiting every participant in the DAO.
In turn, a healthy climate of trust is formed amongst the contributors. This climate of trust promotes collaboration and cooperation between contributors, which could stimulate innovative approaches across different verticals.
So, how does all this talk about blockchain and decentralisation tie in with us? At Seedefy, our mission is to create fair and equal opportunities for startups and investors, especially those operating in emerging markets.
To this end, we have built a DAO run by local self-regulating communities, and blockchain is key to unlocking this system for everyone. Our solution brings democratised access to funding through a decentralised scalable network.
By boarding our DAO, investors will gain access to high-quality deals with reduced effort and risk. As for partners, they enjoy richer global exposure in a harmonious ecosystem that has limited risk. Finally, startup founders stand to benefit from ready access to strategic investors and an active community.
Emerging markets like ASEAN and MENA (Middle East and North Africa) will be our core focus, and as much as possible, we will match them with a counterpart from the more developed world. For example, we will match Indonesian creators with German investors and vice versa.
Alongside scalability and connectivity, trust is one of the core components of Seedefy’s solution. Specialised due diligence, smart funding, and confidential design support the trust element.
By positioning Seedefy as a trustworthy platform that is open to any and all investors, we eliminate the need of a central-governing institution. As a result, we are able to provide everyone with equal access to resources and investment opportunities.
Specialised due diligence
Due diligence is extremely important in venture capital – in a nutshell, a GP spearheads this rigorous process to determine whether a venture capital fund or investor will invest in a company.
However, this process isn’t always thoroughly done to minimise overall cost and time spent. This is especially the case for relatively smaller investments, which often face disproportionately higher due diligence costs.
Seedefy’s solution seeks to fix this problem. We unbundle every key step of the VC process – deal flow, due diligence, and funding – and redistribute them to the community of VCs.
The due diligence process thus becomes democratic, with investors casting votes to determine the viability of a given startup. Local partner communities in the legal, finance, and tech fields will also be responsible for reviewing and verifying the startup.
With each VC process redistributed in a decentralised manner, the overall risk is minimised to give rise to a layer of infastructure that cannot be adulterated.
Democratising due diligence ensures that the quality of this vital process is consistent for both small and large companies.
Smart funding or contracting is the method we use to combat startup abuse and mismanagement. This method utilises a smart milestone-based system that only unlocks investment funds when the startup in question meets pre-set milestones.
It is in enforcing these milestones that we effectively reduce startup risk faced by investors.
To ensure the confidentiality of startups’ intellectual property (IP), we adopt a mandate-matching method that is highly customised for each and every case. In turn, this method reduces misappropriation and the need to disclose more information than is necessary.
At Seedefy, we believe that blockchain is the vehicle that will drive positive change in the world of venture capital. Just like how it has democratised the rules of asset ownership, blockchain will have the same impact on the venture capital landscape.