The Time to Democratize Venture Financing Has Finally Come! — Introducing IdeaFeX
Help make the world a better place by levelling the field in venturing and investment for everyone
Technological revolution has historically been the main force driving economic and social progress: former barriers get shattered, and wealth is redistributed across regions and, within a region, across groups. In this process, regions and groups that succeed manage to improve wealth distribution and create a more cohesive society built on stronger, more engaging institutions. One can even argue that modern democracy wouldn’t be possible without the Industrial Revolution. Today, developments in information and blockchain technologies have brought us another opportunity; they have laid the groundwork for democratizing venture financing globally. Why does it matter?
Fundamentally, it’s finally possible. The first pitfall in venture financing isn’t the risk-reward ratio, though a key issue it is; that would be risk: For a small investor with limited access, investing in a narrow portfolio, sometimes of only one or two early-stage ventures is extremely aggressive. It’s akin to a game of dice where you win only if six is cast; while you may win 10x on six, you stand to lose a lot otherwise — even though the risk-reward ratio is still attractive, unless you’re very aggressive it’s only a good idea to play this game if you can do it repeatedly. The key to democratizing venture financing is therefore giving small investors broad access to a large selection of highly-promising startups.
The second pitfall is, as you may have guessed, reward: Even full-blown VCs usually have narrow specializations. One may be a better judge of the potential of a venture in certain sectors, geographies, or target customers, etc. than others. Knowledge, experience, and personal interest all play a role in how well one is in anticipating rewards. For a truly democratic venture financing platform to succeed, it is critical that investors from all walks of life have an even stake. This entails global access to all promising startups regardless of their specializations, including not-for-profit ventures.
A global forum for venture financing and exchange simultaneously resolves these pitfalls. This, however, isn’t the sole reason behind it: Everyone these days can register an account on a digital currency exchange and realize attractive returns on investment. The reason this forum will succeed is in the social and economic progress that will ensue.
Whatever your belief, unless it is in envy, repression, and tyranny, every single person is better off when more people from all walks of life succeed and are better off: If you want to sell something, it’s better to have a larger demand. If you want to buy something, it’s better to have a broader supply. If you relish when you succeed, you’ll have better odds. If you enjoy when others succeed, you’ll have better days.
In our current system, access to early-stage venture-financing is severely concentrated in a number of local hubs, mostly for for-profit technology startups. Without a global platform that connects investors directly with startups, geographic concentration provides efficiency — at the same time, it leaves many from both sides behind. Every idea isn’t in high-tech, and every investor doesn’t live in San Francisco. At the moment, we do have crowdfunding as an option. However, this is akin to donation, as the lack of equity on investment prevents realizing return on investment — consequently, as a form of venture funding it’s unsuitable for high impact ideas that necessitate considerable commitment. From cold economic calculations, much value that should be created hasn’t been.
Much more crucially and as a result, people haven’t been able to reach their full potential from the perspective of human development. Each and every one of us is born with different talents. In a truly vibrant society, funding should never be the barrier for anyone from realizing their full potential, especially when in the process there’s great return on investment to be made. In the 21st century, it’s extremely frustrating that the surest way to succeed is still the same as it has always been: being born in the right family. Some are suggesting wealth redistribution through taxation and welfare — How about making it possible for every talented mind to reach their full potential? How about giving every ordinary man and woman the access to high potential return on investment while helping the society create value? How about levelling the field in starting a venture and in investing for everyone?
I believe every round of technological revolution has its secondary effects. Each time, leaders emerge as the hegemon while deniers are left behind. I’m introducing IdeaFeX because it may just be the secondary effect that democratizes venture financing and, in the process, help make the world a better place.