Connect with us

Politics

Low-Risk Participation Frameworks Democratize Venture Capital Markets, Bring Retail Investors Onboard

Published

on

Hatu Sheikh


The venture capital (VC) market is undoubtedly the backbone of the global startup ecosystem, helping thousands of entrepreneurs yearly. In 2021 alone, venture capitalists invested a record-breaking $621 billion in startups worldwide—a 111% increase from $294 billion in 2020.

In early 2020, when COVID-19 sent shockwaves worldwide, many people expected VC funding to slow down. Instead, however, it rallied in the opposite direction and went all-in on building promising startups. As a result, most industries witnessed record growth in VC funding in the past couple of years, making innovation capital widely available to anyone who needs it.

Now, this is one side of the picture. The reality beneath the surface is quite different, though. While many startups thrive with VC support, the market pushes a surprisingly large number of them into oblivion. Estimates even suggest that three out of four VC-backed startups fail.

Of course, startups fail due to various reasons, all of which aren’t related to VC funding. Yet, overall, the centralized nature of the VC market and its collective growth-first attitude puts immense pressure on founders and thumps their innovative spirit. If this continues, we could be left with a startup ecosystem that puts innovation on the back-burner. Democratizing VC markets is thus necessary, and one way to do this is by opening the doors to retail investors.

How the Centralized VC Market Kills Startups

To understand the need for retail investor participation, we need to look at the current situation of the VC market. As mentioned, VC funding is at an all-time high and readily available to promising startups. Previously, VC funding rounds went on for months on end. Firms took their time vetting startups and ideas. However, the rounds are done in weeks, and founders with good ideas can easily rake in millions of dollars. But this ease of access to capital comes with a price.

VC firms have an adamant growth-first attitude and are in a hurry to get their investment back with profits. To achieve this, they encourage startups to scale prematurely and focus on growth instead of product development. This leads to half-baked products and services entering the market en masse, focusing on short-term gains instead of long-term success. Things are acceptable if the premature scaling generates a positive outcome and VCs make their profits.

However, if things don’t go well, which is often the case, VC firms have three ways forward. One, they pump more money into the venture. Unfortunately, the founders usually lose control over their business when this happens or even lose their job. Two, VCs buy out the startup, compromising the founder’s vision. Three, the investor liquidates the startup, marking the end of all possibilities, for better or worse.

In all three scenarios, VC firms focus on their profit instead of providing the necessary support for startups to succeed. Moreover, since the VC market is centralized and united, startups face similar problems wherever they go.

Providing Low-Risk Frameworks for Retail Investors

The VC market must become more inclusive for us to witness any positive change in its status. Currently, the VC market is a playground for the elite, with only about 1% retail investor representation, due to its high-risk nature. VCs go all-in on startups they back and are prepared for potential downfalls. Retail investors, on the other hand, invest for steady growth in income and stable returns. As a result, they are usually risk-averse and thus avoid the VC market.

However, without retail investors, the monopoly of big firms in the VC market will continue, and innovation in the startup ecosystem will suffer. So, the only solution is to provide low-risk participation frameworks for retail investors in the VC market.

With the advent of blockchain technology, it is now easier than ever to provide such frameworks and democratize markets. Blockchain technology allows millions globally to pool their resources and fund startups. This way, the monopoly of VCs ends, and founders can focus on innovation and product development. Moreover, in such a scenario, the investment made by individual investors is small, and the associated risk is equally distributed across participants. No single person takes the full blow of fall-outs if any.

As more such blockchain-based protocols come into the picture and reduce risks in the VC market, retail investor participation will increase and ultimately lead to a democratized space that upholds the spirit of innovation.

Venture Capital for the Masses

For a long time, regular retail investors focused on the 60/40 investment strategy, where 60% of the portfolio consists of stocks and 40% of bonds. This was considered the most balanced way for people to make returns. However, this approach is no longer practical under the present market conditions.

Investors are thus looking to diversify their portfolios, investing across asset classes. To this end, providing low-risk, blockchain-powered investment products can be the key to drawing retail investors’ attention. Besides democratizing the VC market, this move can aid wealth generation for the masses, allowing them to capitalize on the growth of innovative and futuristic businesses.

Featured Image Credit: Rodnae Productions; Pexels; Thank you!

Hatu Sheikh

Hatu Sheikh is a Co-Founder of DAO Maker, building the future of venture capital.

Politics

Fintech Kennek raises $12.5M seed round to digitize lending

Published

on

Google eyed for $2 billion Anthropic deal after major Amazon play


London-based fintech startup Kennek has raised $12.5 million in seed funding to expand its lending operating system.

According to an Oct. 10 tech.eu report, the round was led by HV Capital and included participation from Dutch Founders Fund, AlbionVC, FFVC, Plug & Play Ventures, and Syndicate One. Kennek offers software-as-a-service tools to help non-bank lenders streamline their operations using open banking, open finance, and payments.

The platform aims to automate time-consuming manual tasks and consolidate fragmented data to simplify lending. Xavier De Pauw, founder of Kennek said:

“Until kennek, lenders had to devote countless hours to menial operational tasks and deal with jumbled and hard-coded data – which makes every other part of lending a headache. As former lenders ourselves, we lived and breathed these frustrations, and built kennek to make them a thing of the past.”

The company said the latest funding round was oversubscribed and closed quickly despite the challenging fundraising environment. The new capital will be used to expand Kennek’s engineering team and strengthen its market position in the UK while exploring expansion into other European markets. Barbod Namini, Partner at lead investor HV Capital, commented on the investment:

“Kennek has developed an ambitious and genuinely unique proposition which we think can be the foundation of the entire alternative lending space. […] It is a complicated market and a solution that brings together all information and stakeholders onto a single platform is highly compelling for both lenders & the ecosystem as a whole.”

The fintech lending space has grown rapidly in recent years, but many lenders still rely on legacy systems and manual processes that limit efficiency and scalability. Kennek aims to leverage open banking and data integration to provide lenders with a more streamlined, automated lending experience.

The seed funding will allow the London-based startup to continue developing its platform and expanding its team to meet demand from non-bank lenders looking to digitize operations. Kennek’s focus on the UK and Europe also comes amid rising adoption of open banking and open finance in the regions.

Featured Image Credit: Photo from Kennek.io; Thank you!

Radek Zielinski

Radek Zielinski is an experienced technology and financial journalist with a passion for cybersecurity and futurology.

Continue Reading

Politics

Fortune 500’s race for generative AI breakthroughs

Published

on

Deanna Ritchie


As excitement around generative AI grows, Fortune 500 companies, including Goldman Sachs, are carefully examining the possible applications of this technology. A recent survey of U.S. executives indicated that 60% believe generative AI will substantially impact their businesses in the long term. However, they anticipate a one to two-year timeframe before implementing their initial solutions. This optimism stems from the potential of generative AI to revolutionize various aspects of businesses, from enhancing customer experiences to optimizing internal processes. In the short term, companies will likely focus on pilot projects and experimentation, gradually integrating generative AI into their operations as they witness its positive influence on efficiency and profitability.

Goldman Sachs’ Cautious Approach to Implementing Generative AI

In a recent interview, Goldman Sachs CIO Marco Argenti revealed that the firm has not yet implemented any generative AI use cases. Instead, the company focuses on experimentation and setting high standards before adopting the technology. Argenti recognized the desire for outcomes in areas like developer and operational efficiency but emphasized ensuring precision before putting experimental AI use cases into production.

According to Argenti, striking the right balance between driving innovation and maintaining accuracy is crucial for successfully integrating generative AI within the firm. Goldman Sachs intends to continue exploring this emerging technology’s potential benefits and applications while diligently assessing risks to ensure it meets the company’s stringent quality standards.

One possible application for Goldman Sachs is in software development, where the company has observed a 20-40% productivity increase during its trials. The goal is for 1,000 developers to utilize generative AI tools by year’s end. However, Argenti emphasized that a well-defined expectation of return on investment is necessary before fully integrating generative AI into production.

To achieve this, the company plans to implement a systematic and strategic approach to adopting generative AI, ensuring that it complements and enhances the skills of its developers. Additionally, Goldman Sachs intends to evaluate the long-term impact of generative AI on their software development processes and the overall quality of the applications being developed.

Goldman Sachs’ approach to AI implementation goes beyond merely executing models. The firm has created a platform encompassing technical, legal, and compliance assessments to filter out improper content and keep track of all interactions. This comprehensive system ensures seamless integration of artificial intelligence in operations while adhering to regulatory standards and maintaining client confidentiality. Moreover, the platform continuously improves and adapts its algorithms, allowing Goldman Sachs to stay at the forefront of technology and offer its clients the most efficient and secure services.

Featured Image Credit: Photo by Google DeepMind; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

Continue Reading

Politics

UK seizes web3 opportunity simplifying crypto regulations

Published

on

Deanna Ritchie


As Web3 companies increasingly consider leaving the United States due to regulatory ambiguity, the United Kingdom must simplify its cryptocurrency regulations to attract these businesses. The conservative think tank Policy Exchange recently released a report detailing ten suggestions for improving Web3 regulation in the country. Among the recommendations are reducing liability for token holders in decentralized autonomous organizations (DAOs) and encouraging the Financial Conduct Authority (FCA) to adopt alternative Know Your Customer (KYC) methodologies, such as digital identities and blockchain analytics tools. These suggestions aim to position the UK as a hub for Web3 innovation and attract blockchain-based businesses looking for a more conducive regulatory environment.

Streamlining Cryptocurrency Regulations for Innovation

To make it easier for emerging Web3 companies to navigate existing legal frameworks and contribute to the UK’s digital economy growth, the government must streamline cryptocurrency regulations and adopt forward-looking approaches. By making the regulatory landscape clear and straightforward, the UK can create an environment that fosters innovation, growth, and competitiveness in the global fintech industry.

The Policy Exchange report also recommends not weakening self-hosted wallets or treating proof-of-stake (PoS) services as financial services. This approach aims to protect the fundamental principles of decentralization and user autonomy while strongly emphasizing security and regulatory compliance. By doing so, the UK can nurture an environment that encourages innovation and the continued growth of blockchain technology.

Despite recent strict measures by UK authorities, such as His Majesty’s Treasury and the FCA, toward the digital assets sector, the proposed changes in the Policy Exchange report strive to make the UK a more attractive location for Web3 enterprises. By adopting these suggestions, the UK can demonstrate its commitment to fostering innovation in the rapidly evolving blockchain and cryptocurrency industries while ensuring a robust and transparent regulatory environment.

The ongoing uncertainty surrounding cryptocurrency regulations in various countries has prompted Web3 companies to explore alternative jurisdictions with more precise legal frameworks. As the United States grapples with regulatory ambiguity, the United Kingdom can position itself as a hub for Web3 innovation by simplifying and streamlining its cryptocurrency regulations.

Featured Image Credit: Photo by Jonathan Borba; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

Continue Reading

Copyright © 2021 Seminole Press.