Insights from the Engine Room: Driving Innovation in Funding Processes
Arguably, entrepreneurial finance has seen a lot of innovations and new players in the market in recent years. Both companies and investors have a growing number of alternatives to choose from, either to raise or invest money, respectively. For example, the rise of various online platforms and market places has helped facilitate the matching between companies and capital. Yet, we believe raising money in Germany is still limited, tricky and leaves room for further improvements. Additionally, early-stage investors, e.g. business angels or venture capitalists, often find it hard to sell their shares due to their (often) illiquid nature and non-transparent or even non-existing secondary market structures. Furthermore, many startups remain out of sight and inaccessible for money from retail investors due to lacking transparency.At the same time, we see innovative technologies such as Blockchain and Distributed Ledgers bringing new dynamics into the market. We believe that the rapid technological progress has the potential to disrupt capital markets and may contribute to the development of new asset classes. For example, smart contracts allow to efficiently create tokens that can generally embody a wide range of entitlements to investors, such as financial participation rights, rights to use a service, or simply a unit of account. Tokens bear the attractive feature that after the initial issuance, they can be traded on a crypto exchange. This tradability is a distinctive benefit over conventional funding means, such as equity shares or loans. In our opinion, Distributed Ledger Technologies can thereby contribute to enlarging the marketplace to more investors. Our project partner Börse Stuttgart Group is well-positioned in this new ecosystem and works with great pace on building a comprehensive platform that allows to issue and subsequently trade digital assets.So, within Startbase, we are spending a significant amount of our time to learn about the opportunities these new technologies offer to make it easier for startups to raise money to fund their company growth and expansion. Currently, we are in intensive talks with legal partners, key service providers, as well as interested startups and investors. Our goal is to develop, design and evaluate digital, legally compliant and scalable funding products that provide value to both startups and investors. For example, digitizing Virtual Stock Options (ESOP program), that are traditionally used to compensate employees at the time of exit, offer distinctive benefits to startups in need of capital, and to investors, which are in search of private innovation companies, such as Business Angels or early-stage VCs.If you’re curious and you want to learn more about the Startbase activities within digitizing investment processes, drop a mail to Marc (firstname.lastname@example.org), who leads the project.