2.5 billion people worldwide are excluded from financial services. Specifically, in developing countries, financial exclusion is one of the major development obstacles, where up to 80% of the population do not have access to financial services.
Without a developed legal system, start-ups often have to accept the investors’ conditions without understanding it and without the opportunity to seek legal counsel. This may result in unequal agreement which favours the investors.
In the absence of multiple funding opportunities, investors can leverage their position over local start-ups resulting in abnormal equity shares or collateral collection. Furthermore, start-ups depend on additional capital injections from the investors which can result in the abuse of power from investors.
Due to an underdeveloped financial system, local entrepreneurs fail to receive funding for their start-ups. Even if they manage to find an investor, they often fail to subsequently attract additional capital.
Current investment vehicles offer a lack of transparency for investors, especially concerning the usage of funds.
Due to a lack of profitable and sustainable exit opportunities investors refrain from investing in developing countries.
30 % of the investors surveyed by the Financial Times cannot find suitable impact investments that fit their portfolio.
The CDF provides a way to finance start-ups that bring impact to their respective area.
We are specifically interested in FinTech, Mobility, Energy and Healthcare.
These applications offer strong growth potential in developing countries and will be essential to reaching sustainable development goals as proposed by the UN.
So-called “high-growth” entrepreneurship contributes around 50% of newly created jobs in developing countries. Our concept is to support these transformational entrepreneurs to fund their businesses and consequently make a positive economic impact in their region.
We focus on companies which build their business based on the blockchain technology to fill the gap of weak regimes. Most of the countries fail to realize their potential because they do not have a functioning infrastructure and legal system to encourage entrepreneurship and growth. We specifically target those companies which aim to fill that gap and provide alternative infrastructure on which other companies can build. Therefore, we are creating a self-reinforcing process which foster development and entrepreneurship.
Due to the creation of milestones and the interaction between the investors and the start-ups, entrepreneurs can widen their horizon and discuss business focus with a wide range of people.
Head of Nigeria
In particular, weak institutions and corruption hinder the evolution of a stable financial sector and favour power disparities among the population. The blockchain technology is one of the key technologies to fill the gap of failed states in developing countries. The blockchain empowers people to set up their own rules and to collaborate on the blockchain without a central controlling authority. In the following decades, the blockchain technology will be the key technology for developing countries to revolutionize their financial and legal sector and to jump out of poverty.
It is almost impossible for investors from developed countries to find good investment scopes in developing countries. The biggest obstacles for investing in developing countries have been trust and information asymmetries. In order to bypass fraudulent acts, investors have to set up complicated measures including identity proof, collateral collection and legal documentation. Not only are those measures expensive and time-consuming, but also make an investment less attractive. Moreover, many entrepreneurs in developing countries cannot provide it. In addition, the absence of a legal framework often prevents investors and start-ups to reach an agreement. Even if the agreement is successful, it often reflects the investors’ interests leaving the start-ups in a state of dependence.
As a result, investments are less likely. Current investment vehicles aim to solve these problems but often result in high costs and inefficiencies.
On our platform, we offer an overview of pre-screened blockchain start-ups and the opportunity to invest in them. If needed, investors can contact the start-ups directly before making an investment decision.
We maintain a legal framework through our smart contract, in which the investors and start-ups can operate. Moreover, we ensure that both parties abide by the contract thereby decrease the risk of costly legal disputes.
Before a start-up can receive funding, it needs to achieve pre-defined milestones in order to proof their intention and eligibility. In addition, we will verify the entrepreneurs’ identity. We continuously monitor the start-up’s progress using our CDF-Scoringboard.
With our escrow mechanism, we secure that new payments will automatically be freed if the start-up achieves new milestones, protecting it from funding uncertainties. In this way, we eliminate the need to manually manage the investments.
In order to provide a legal investment vehicle for the investors and start-ups, we tokenize the company and distribute the shares accordingly. As a result, we do not rely on legal systems in developing countries, which may be corrupted.