Centralized Flaws in Fundraising: Moving on From Trust-Based Intermediaries
The traditional approach to fundraising is to go through centralized intermediaries. Despite being trusted by investors and entrepreneurs for decades, these come with certain flaws — such as limited access or opaque practices. As outlined in our last blog “Gatekeeping in Crypto”, these centralized intermediaries exclude certain participant categories or jurisdictions and restrict the fundraise to their selective client base. This leads to capital not being optimally allocated and has the side effect of giving centralized providers a lot of influence on the perception and evolution of the crypto ecosystem as a whole.
Additionally, the current (centralized) system is fairly error-prone. It lacks accountability, with often rather arbitrary decision-making processes by centralized providers to which projects looking to raise funds are exposed to. Projects may be forced to take whatever deal they can get — which can be okay if that represents a project’s free market value but is problematic if existing power structures and quasi-monopolies are abused.
The regulatory requirements for fundraising campaigns — especially global ones — are challenging to comply with, creating legal overhead for participants and intermediaries. This also introduces additional reputational tail risks (and costs) that may lead to investors, especially of the institutional kind, avoiding a fundraising round due to potential long-term costs and consequences. It also mostly results in the centralized intermediary erring on the side of caution, limiting the full theoretically possible scope of the fundraise.
A very recent example from traditional finance of how trusting centralized intermediaries can go wrong for startups is the collapse of the Silicon Valley Bank, formerly the 16th largest bank in the U.S., catering to the needs of many early-stage companies. Many of those startups saw their future threatened by losing access to their cash — until the government stepped in to reassure depositors. Web3 offers the tools to create a more robust and transparent system.
Polimec: A Solution for Decentralized Fundraising
Polimec provides a trustless solution to the issues associated with centralized intermediaries by incorporating these Web3 tools in its protocol. Participants benefit from Polimec’s openness to all participant categories — be it retail, professional, or institutional investors. They can be regulatory compliant without renouncing their data privacy and seamlessly access opportunities globally, enabled through a modern credentialing system. Strict transparency is maintained regarding entry prices, vesting periods, and token allocations.
Projects benefit from this diverse mix of investors and are immediately bootstrapped with a community that is engaged from day 0 through their role as evaluators. Another advantage from the point of view of a project is the highly efficient, automated process from fundraise all the way to token distribution upon mainnet launch.
Overall, Polimec leverages the capabilities of Web3 to improve traditional fundraising processes and creates an environment that benefits both the project and investors beyond the fundraise.
More in our Whitepaper!
