Whither the angel’s mojo?
The venture capital (VC) firm Cosimo Ventures newest fund, known as Cosimo X, is the latest to use a VC token to open up venture capital to an entirely new set of investors.
The timing couldn’t be better, as VCs are finding themselves in a bit of a bind.
It’s true that VCs still wield an immense amount of power and influence. The Q4 of 2017 recorded the highest VC funding in a decade, according to a KPMG report. We know how essential VCs are for start-ups not just in terms of funding, but in shepherding of young companies through their formative years, providing business knowledge, accelerators, and ‘Proofs of Concept’ (PoCs). VCs also provide important networking opportunities to start-ups, passing on their experience in the market. Start-ups receiving VC funding earn a sheen of prestige and positive media coverage as an added bonus. VC investors have good clout with the business media, so if a start-up fails, it receives minimal negative media coverage.
However, a deeper look at the number tells us that not everything is well in VC land. For example, an Entrepreneur article shows that between Q2 2016 and Q2 2017, total VC funding fell by 11 percent. Adding fuel to the fire, blockchain based ICOs significantly overshadowed VCs in 2017, as this ‘statista’ report demonstrates. The VC landscape faces a degree of stagnation due to entry barriers and long vesting periods. VC funds require a minimum of US $ 00,000 from accredited investors, and the vesting period is seven to ten years. VCs need to be in sync with the present.
This is where Cosmo Ventures’ VC token comes in.
It’s a widely precept that innovation opens wealth creation opportunities to more people. Cosimo Ventures is trying to do exactly that with their VC token, by using the token to extend investment opportunities in VC to a new set of investors.
The company will distribute their Cosimo VC token with a low entry barrier compared to traditional VCs. They will accept a minimum of US $250,000 from accredited US investors, significantly lower than the current US $500,000. The minimum amount for qualifying non-US investors is US $10,000.
Token holders will also be able to move in or out of the fund, unlike the protracted vesting period in traditional VCs. The company believes that the liquidity and lower entry barrier will increase investments in their fund and help them fund bleeding edge technologies like blockchain, IoT, AR, VR, AI, and cybersecurity. They will back their VC token with a portfolio of such high-tech companies, with investors gaining an indirect stake in the fund. More investors in their VC fund will benefit the portfolio companies since they can now access a greater pool of funds.
Ciarán Hynes and Rob Frasca are managing partners of Cosimo Venture. The company has over 25 years of experience in investing in technology start-ups. They have a proprietary “X-Scale Value Creation Process” that Cosimo X will use to guide technology companies, and to the benefit of their investors.