Venture capitals help potential enterprises to raise their capital funds where liquidity and transparency are the two problems acknowledged by investors itself and dNFT is a standard used for tokenizing and transforming the VC funds. In this article, we have discussed the present problems and solutions in the Venture Capital industry.
In past times, we have seen VC tokens been tokenized in Ethereum blockchain. Using the Security Token or ERC-20 tokens in Ethereum has been popular to solve this use case. In this article, we will look at how VC funds can be tokenized in EOSIO blockchains using dNFT. Consider each company to be raised and represented in the form of each dNFT token. Each dNFT can have a maximum of 100 PERs representing 100% ownership. If a company wants the funds equivalent to its say x% ownership, x PERs are issued to the company. The company asking for VC funds can exchange these PERs of company NFT with cryptocurrency or Fiat payment. In this way, it provides liquidity to its investors and to crowdsale the fund-raising process. Creating an NFT in technical aspects allows one to uniquely define the company and its category at present.
Rationale
- Companies looking for VC funds define the category of funding needs like Seed capital, Early-stage, etc. The nonfungible token is created for the company holding 100 PERs (~100%) by the creator account. As per the actual ownership of stakeholders, the PERs are issued by the creator. Note: company can actively be in only 1 category only.
- validator accounts verify the creation of NFT in real-world i.e. verifies if the owner of x PERs actually holds x% ownership in real-world. These validator accounts are of the VC Funds platform. They verify KYC and all the documents/accreditation process required in the real-world and make it a legal deed.
- After successful validation by validators, any owner can sell the ownership of NFT in the form of PERs and ask for funds. They can sell in 2 ways, either by fixed price per percentage (allows multiple owners for x PERs) or via a bidding mechanism (allows the transfer of x PERs to the largest bidder).
- Investors can hence own the NFT (company) in exchange for cryptocurrency. After every trade, the valuation of NFT is changed.
- The valuation of ownership of NFT on the blockchain is based on cryptocurrency & hence liquid. So, the valuation audit for 100% of the company by a trusted third-party entity is performed each quarter and published as a current valuation of each PER.
- Investors can effectively exit the ownership to realize gains by selling their NFT percent ownership after minimum investment time is realized or by safe-exits procedure anytime explained below.
How investors can invest in VC funds?
The standard token contract (eosio.token) is deployed with few conditions of min. investment and equivalent value to 1 USD for each token.
The number of tokens is based on an interest of 5% profit of VC per annum for each investor individually. Hence the number of tokens with a particular investor rises with each token still having the value of 1 USD. This rise in tokens happens every year for the investor.
In case of safe exits required by investors, they can exit any time with 50% cash and leftover 50% still in the form of tokens. Subsequent withdrawals can be in 1 month time period till 6 months.
Hence, the VC firm gets investment in the long run, as well as investors, tend to gain profit year by year.
Transparency matters!
VC funds need transparency for how much equity they have invested and for how much price. This is done using the concept as discussed above using dNFT.
Investors investing in VC funds need transparency to profits of VC firms. For each sale of equity (PERs of dNFT) the profit gain in cryptocurrency is noted in the VC’s account with the timestamp. For that timestamp, the equivalent USD value is compared with an initial investment for the same PERs. 5% of the gain calculated is directly received by investors.
Companies receiving funds from VC firms are bound to VC firms legally in terms of equity and other deals.
Conclusion
We aim to lessen the difference between real-world and blockchain data. It becomes easier for investors to invest, also keeping it transparent and easy for owners to ask for cash.
dNFT, a transforming standard for tokenizing is the next thing for the tokenization of VC funds making out the best returns which prove to be fine for both the ends, just check more about dNFT here:
https://dnft.quillhash.com/
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