Raising capital isn’t always a viable option, which explains why some opt to get funding. And in most cases, banks are not keen on offering business loans without any collateral. Leaving many between a rock and a hard place but what about blockchain project funding?
With the changing landscape, entrepreneurs need to familiarise themselves with blockchain technology because this is an untapped platform that can help them raise the funds they need because it:
- Prevents fraudulent activities to happen on the ledger
- Removes any 3rd party intermediaries
- Processes transactions faster and settles them in minutes or seconds
- Reward users or investors fairly overtime hence contributing towards wealth creation
And with digital transactions on the rise, blockchain is an effective way to raise funds. Yes, blockchain is a distributed, decentralised, public ledger but blockchain offers transparent access from anywhere in the world. Furthermore, blockchain technology reduces the processing time; eliminates the use of paper and saves money while ensuring transparency, security, and trust. And as an emerging technology that is transforming the internet, opportunities created will increase as entrepreneurs change their business models to adapt to the ‘new’ business landscape.
According to seasoned entrepreneur and founder of Cryptovecs, John Lombela entrepreneurs need to understand that even though blockchain allows for faster, transparent, auditable, and extremely low-cost transactions and settlement layers on the fund distribution side, the implementation of smart contracts represents fund characteristics and execution terms, similar to legal binding agreements, as well as the creation of digital fund shares which are exchanged against an invested amount for digital currency.
Can this benefit African start-ups?
Mr Lombela adds that traditionally start-ups were able to raise capital through venture capital firms but there was a fundamental problem in that investing in African start-ups lacked an exit strategy that would bring significant returns to investors. And while Africa presents great opportunities for investing, technology is still at its nascent phase that it rarely attracts the liquidity necessary to support these start-ups.
Fortunately, the solution is to build secondary markets, such as stock exchanges, that would allow more liquidity to flow in and allow potential investors to make money. And blockchain allows this to happen. “We can create OTC (over the counter) platforms that allow us to have enough liquidity to trade and have start-ups raising funds to support their projects. These OTC platforms can be regulated in ways to improve the ecosystem and increase liquidity while stimulating a digital economy.” He adds “Investors can, therefore, exchange money for digital tokens representing digital shares that can be traded on these OTC platforms to stimulate the economy and increase liquidity. The hurdle now lies around structuring a regulatory framework that will instil investor confidence.”
And with change comes more opportunities, fortunately, blockchain is the change needed especially in an ever-changing digital economy. With new ways for entrepreneurs to quickly raise capital blockchain disrupts the traditional capital raising process in that, it provides a transparent funding business model, gives an incentive to participants by offering an ROI that could appreciate over time and enable cross-border fundraising.