Behind the Scenes: Interview with the Management Team
The management behind ScalingFunds explains their journey from blockchain startup to helping building funds.
Blockchain has received its fair share of negative press in recent times. Whilst many still connect blockchain technology with the negative aspects of cryptocurrencies and ICO’s, new companies with valuable use cases are starting to arise. ScalingFunds, a brand from the Berlin-based startup Brickblock, recently launched Europe’s first blockchain powered fund with Peakside Capital Advisors AG. In this interview, Jakob Drzazga (Founder and CEO), Vincent Ma (Managing Director and COO), Philip Paetz (CTO) and Colin Nimsz (General Consul and CSO) discuss their most recent innovative product and how their technology is solving the problems of a sector in dire need of innovation.
What prompted ScalingFunds to use blockchain for funds?
Jakob Drzazga: I originally wanted to create my own fund, however the process was very slow, manual and presented multiple challenges. I was surprised to find that there were no digital solutions in the market. Since the start of Brickblock it’s always been my vision to use blockchain technology for funds. Last year, we built a blockchain powered product for a real estate property, so a lot of our core, back-end technology was ready. This use case generated a lot of excitement in the market about blockchain technology. When we were pitching our technology at the MIPIM real estate conference, this caught the eyes of fund managers and we found that there was a huge demand, which prompted us to bring our plans forward.
Vincent Ma: The more discussions we had with fund managers, the more we realised that they were in dire need of technology solutions. We’re talking about a sector, which is still using a lot of spreadsheets in the back office and very little online experiences for the customer.
So there is a demand for this?
Colin Nimsz: Yes, we’ve learned that moving paper based processes to a digital form is a core issue for fund managers and once in digital form, data management and reconciliation are major problems many in this industry struggle with. Moving to a single source of truth, where every party is reading the same data in real time has massive benefits and is under high demand.
Vincent Ma: Especially when they want to attract a new generation of investors or open up to international investors.
Jakob Drzazga: Additionally, Real Estate Fund managers need to handle a lot of data, which is driving the demand for automation and data analytic tools.
How are you using Blockchain?
Philip Paetz: There are a few key benefits of using blockchain technology for us. Firstly, by using a decentralised public ledger, we have an accurate cap table at all times with a full audit trail. This makes compliance much easier. Our fully audited smart contracts have specific business rules on top to ensure we can comply with regulation across all kinds of asset classes and jurisdictions.
Consequently, dividend payouts are going to be an order of magnitude easier than the status quo. We’re able to accurately calculate and distribute the exact dividends to all investors in almost real time.
In the long term, I can see more interesting use cases centered around improving corporate governance. Security tokens could enable on-chain voting for governance decisions for all stockholders without the huge process overhead that exists today.
Vincent Ma: By using blockchain, we’ve digitised the investors shares, a process also known as “tokenisation”. The key benefit is that investors may now trade their investment on the secondary market. Our automatic clearing registry is powered by smart contracts and
records investors’ ultimate beneficial ownership of the fund shares on to the Ethereum blockchain.
What key pain point are you solving?
Colin Nimsz: We identified several key pain points fund managers are experiencing, an overly complex investor experience, no single source of truth, and a lack of liquidity/tradeability. This creates friction in the system, which leads to waste, frustration, and inflexibility. All this increases the time to raise capital, and keeps some investors from subscribing at all.
Vincent Ma: Also, we’re helping fund managers widen their investor pool by accepting lower investment amounts. Previously, it didn’t make much sense for a fund manager to take on investors who didn’t invest more than their minimum investment amount, as the time and effort costs of investor onboarding were too much of a burden. The existing processes and lack of technology made it hard for fund managers to do business. Our technology greatly simplifies onboarding and allows reducing the minimum ticket size down to a fraction of what was offered before.
Colin Nimsz: To streamline the process further, we created a turn-key solution for Asset and Fund managers. We established a Luxembourg domiciled specialised investment fund (SIF) with all services providers and our technology built in. By using compartments we can issue independently managed sub-funds, allowing asset managers to have their fund up and running in 6 weeks rather than 6 months or longer. This also allows us to use volumes of scale to reduce service provider costs. If an asset manager just want to focus on acquiring assets and bringing in capital, this is the solution for them.
Jakob Drzazga: It’s important to remember that we are a B2B technology provider. We help fund managers scale their business by providing a fund-as-a-service platform that allows them to focus on what they do best: Bringing value to their clients. By using our platform, fund managers can gain more customers with lower investment amounts, and access our extensive network of financial advisers. This allows the completion of funds quicker than ever before, empowering the fund manager to grow their assets under management (AUM). By continuing this process, the fund manager will benefit from lower costs per EUR, increase their returns and reputation and ultimately growing their total AUM even more.
So where to next?
Philip Paetz: We’ve got a whole lot of exciting new projects underway! However we prefer to deliver and announce our products only once they hit our internal high quality standards.
Jakob Drzazga: We can say a few things, we’re extending our product features incrementally over the year but we’re hoping to make an announcement with regards to a well known financial services company later this year, so please keep watching this space.