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 does 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 council. This may result, in unequal agreement which favour 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 find first investors, they are often not able to subsequently attract additional capital.
In order to avoid fraud, current investment vehicles apply traditional measures e.g. collateral collection and engage in complex verification processes which are obsolete in this age. As a result, the investment/funding process consumes much time and high resources which increase the cost of investments.
One of the biggest problems why venture capital firms do not invest in developing countries is the absence of exit opportunities. Without a stock exchange or big competitor, there is no market to sell the company after successful growth. Therefore, we provide a platform at which investors can resell their company share to the next investor.
When investing in developing countries, it is often difficult for investors to observe or control the actions of the entrepreneur. As a result, they often rely on the entrepreneur or on expensive third parties to achieve transparency.
CDF provides a way to financing start-ups which utilize the blockchain technology in the areas of finance, payments, governmental services, property registries, energy, IoT and sharing economy. These applications offer strong growth potential in developing countries and will boom in the next years.
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 as a result make a positive economic impact on their region.
We focus on companies which build their business on the blockchain technology to fill the gap of weak regimes. Most of 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. Due to this, we will create a self-reinforcing process which foster development and entrepreneurship.
Due to the creation of milestones and the interaction with investors and other 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 investments in developing countries. The biggest obstacles for investing in developing countries have been trust and information asymmetries. In order to protect from fraud, investors have to set up complicated measures including identity proof, collateral collection and legal documentation. Not only are those measures expensive and time-consuming and thus, make an investment less attractive, many entrepreneurs in developing countries are not able to provide it. In addition, the absence of a legal framework often prevents investor and start-up to achieve an agreement. Even if they are successful, the agreement will often reflect the investors interests leaving the start-up 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.
Due to our smart contracts, we maintain a legal framework in which the investor and start-up can operate in. Thus, we ensure that both parties stick to it thereby decreasing the risk of costly legal disputes.
Before a start-up can receive funding, it has to achieve pre-defined milestones in order to proof their intention. In addition, we will verify the entrepreneurs identity. We continuously monitor the start-ups progress using our CDF-Scoringboard.
With our escrow mechanisms, 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 investor and start-up, we tokenize the company and distribute the shares accordingly. As a result, we do not rely on corrupted legal systems in developing countries.