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Blockchain projects open new horizons to African start-ups looking for seed capital

Blockchain projects open new horizons to African start-ups looking for seed capital

South African crypto-entrepreneur John Lombela said it is easier to start a business than to stay in business but there are alternative funding channels of which blockchain projects are quickly rising in relevance and prominence.

“For most aspiring entrepreneurs the going gets tough from the word go because for some to turn their business ideas into reality they need capital,” he said adding that there are many obstacles in raising capital the conventional way.

In most cases, banks are not keen on offering business loans without any collateral leaving many between a rock and a hard place but what about blockchain project funding,” he continued.

Punting the benefits of blockchain-based financing, he said it is an untapped platform that can help start-ups raise the funds they need. He pointed out that blockchain technology, amongst many other benefits, prevents fraud, relieves entrepreneurs of having to work through third party intermediaries, and it offers faster transactions which are settled in minutes or seconds.

“Yes, blockchain is a distributed, decentralised, public ledger but blockchain offers transparent access from anywhere in the world. Furthermore, blockchain technology reduces the processing time; eliminates the use of paper and saves money while ensuring transparency, security, and trust. And as an emerging technology that is transforming the internet, opportunities created will increase as entrepreneurs change their business models to adapt to the ‘new’ business landscape,” he said.

Lombela said that entrepreneurs need to understand that even though blockchain allows for faster, transparent, auditable, and extremely low-cost transactions and settlement layers on the fund distribution side, the implementation of smart contracts represents fund characteristics and execution terms, similar to legal binding agreements, as well as the creation of digital fund shares which are exchanged against an invested amount for digital currency.

“But what are the benefits for African entrepreneurs,” he asked.

Traditionally start-ups were able to raise capital through venture capital firms but there was a fundamental problem in that investing in African start-ups lacked an exit strategy that would bring significant returns to investors. And while Africa presents great opportunities for investing, technology is still at its nascent phase that it rarely attracts the liquidity necessary to support these start-ups.

According to Lombela, the solution is to build secondary markets, such as stock exchanges, that would allow more liquidity to flow in and allow potential investors to make money. And blockchain allows this to happen.

“We can create OTC (over the counter) platforms that allow us to have enough liquidity to trade and have start-ups raising funds to support their projects. These OTC platforms can be regulated in ways to improve the ecosystem and increase liquidity while stimulating a digital economy.”

“Investors can therefore, exchange money for digital tokens representing digital shares that can be traded on these OTC platforms to stimulate the economy and increase liquidity. The hurdle now lies around structuring a regulatory framework that will instil investor confidence.”

“And with change comes more opportunities, fortunately, blockchain is the change needed especially in an ever-changing digital economy. With new ways for entrepreneurs to quickly raise capital, blockchain disrupts the traditional capital raising process in that it provides a transparent funding business model, gives an incentive to participants by offering an ROI that could appreciate over time and enable cross-border fundraising,” he said.

For more information, contact John Lombela through any of his social media pages: Twitter: @JohnLombela; Facebook: @JohnLombela; LinkedIn: @ JohnLombela .


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