Agefi Interviews Alexander Tkachenko about a new trading platform for venture capital investments

May 16, 2019

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Tell us about your career path and what led you to launching VNX Exchange.

I am a VC investor in Luxembourg. While running my fund, 2be.lu, I came across the issue of restricted liquidity in VC funds firsthand. You see, VC firms have a limited pool of financing at their disposal, the size of the fund. Once they invest into a startup, they have to wait for years, sometimes decades or longer for a successful exit of that portfolio company, be it through an IPO or an M&A deal. That limits what VC funds can do and restricts capital from flowing to more promising startups. This is what got me thinking and led to the birth of VNX Exchange, a trading platform for venture capital investments. Our platform solves precisely the problem I have described. It tokenizes VC funds’ startup portfolios, or splits them into many pieces available for sale or purchase by a broad pool of investors. We are a matchmaker between VC funds that are looking for liquidity to invest into more startups on the one hand, and investors who would like to own a piece of the next Uber or Airbnb on the other. With our help you don’t have to have millions of dollars to do that. Essentially we give people access to innovative technologies long before the companies that develop them become public. It is a win-win for everybody.

 

Can you explain what tokenization is and what its benefits are?

 

Tokenization, simply put, is an act of splitting an asset into a multitude of virtual pieces that offer investors who purchase these tokens an opportunity for fractional ownership of the tokenized asset. A simple example would be a Picasso painting. It can not be cut into thousands of pieces and sold to investors, all it would do is destroy a work of art and make it worthless. Tokenization allows us to split this painting into virtual pieces that can be bought and sold by many people who would otherwise never been able to purchase it. In the case of tokenizing venture capital, we take a VC fund’s startup portfolio and divide it into many virtual parts that can be traded on our marketplace and be available to a broad pool of investors. Essentially you can by proxy be an investor into emergency technology startups way before they become a new Facebook or Uber.

 

Why are investors increasingly turning to venture capital?

 

Venture capital has for the longest time been an investment vehicle that could bring outsized returns. Roughly 1 in 10 VC deals is generating returns of over 5x to their investors, while so called “moonshots” can return 50-70x invested capital. No wonder investors flock to VC. The only problem is that the barrier for entry is very high. Unless you can write a multi-million-dollar check, you will not get a seat at this table. Our platform aims to change that. Our investors will be able to buy tokens that represent parts of VC funds’ portfolios for a fraction of the cost that being an VC partner entails.

 

What do cryptocurrencies and “tokenized” assets represent for risk managers?

 

They can be a great opportunity to veer into the land of new technologies. Understanding them can be a challenge but to those who look for an underlying asset behind any digital instrument it will be a reward. Economies are becoming more and more unpredictable but technology advancements can offer a place for optimism and safety to those who seek to understand how they work.

 

Which types of assets are easier to “tokenize” than others?

 

The question is not whether one asset is easier to tokenize than another, the question is whether what you are tokenizing is a solid real-life asset rooted into a smart investment strategy. Theoretically you can tokenize not only art or real estate but also a table or a bar stool. But will it make it a strong financial instrument based on sound investment strategy? Probably not. In the case of a tokenized VC portfolio, you have an asset that is supported by years of experience managing companies and a diversified portfolio that hedges funds against risks of failure. And if they get tokenized on VNX Exchange, a platform that aims to be regulated, performs careful due diligence of all VC funds and carries out transactions on the blockchain, that ensures safety and security for both VCs and prospective investors.

 

Do you think that in the future all assets will be tokenized?

 

Theoretically many things can be tokenized, even a cat or a chair, but it doesn’t mean that investors are going to buy these tokens. Financially and strategically tokenizing many assets does not make sense. Tokenization for the sake of tokenization doesn’t work. But it does work very well in case of tangible, real-life assets such as venture capital.

 

This means that in the end, everyone can become an investor?

 

Tokenization on the blockchain makes investing a more democratic process by virtue of being decentralized. It transcends borders and liaises with fiat currencies. It also allows for fractional ownership of assets that have been previously out of reach for so many. In the case of venture capital, it allows people to invest into emerging tech companies, future disruptors of our daily lives, the next Ubers and Facebooks of the world.

 

How do traditional financial institutions react to the blockchain-based marketplace?

 

I think a lot of traditional financial institutions are discovering the power of blockchain and blockchain-based digital financial instruments. Organizations like Fidelity and Morgan Stanley are investing in blockchain R&D and recruiting talent from Silicon Valley to understand this technology. The incumbents are venturing into cryptocurrencies and actively talk about digital assets. It is only a matter of time before they fully embrace it or they risk being left behind in this new technology revolution. Our platform actually takes the best of both worlds. It is a bridge between traditional financial institutions and blockchain-based technology. It aims to be a fully regulated platform similar to the traditional stock exchanges but it also takes advantage of distributed ledger technology with its immutability, safety of transactions that can happen 24/7 and a vast reach.

 

Have you received the approval from CSSF?

 

We are in the process of securing all necessary approvals, including the approval from the CSSF, to launch a fully regulated exchange. Our goal is to ensure full transparency and safety of everything that we do so that our investors can trust us.

 

Can Luxembourg become a European leader in blockchain?

 

Luxembourg can absolutely become a Europena leader in blockchain. It has some of the world’s most forward-thinking regulators who understand the potential of this technology and offer a pathway to its mainstream adoption. In fact, in February Luxembourg’s parliament passed a law facilitating the use of blockchain in financial services. The law has given transactions performed with blockchain technology the same legal status and protection as those carried out through traditional means. Legal advancements like this one can make Luxembourg the go-to jurisdiction for blockchain not just in Europe but also globally.

 

What are your objectives in Luxembourg for 2019?

 

Our goal is to become Luxembourg’s first regulatory compliant marketplace for venture capital. Our home and our main priority is Luxembourg at this stage. I am a strong believer in that Luxembourg really stands on the forefront of the most important global trends in fintech and it makes the perfect launchpad for our platform.

 

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