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The Current Approach
Web3 hedge funds and venture funds explicitly acknowledge the advantages of blockchain technology by nature of their investment focus, but to date largely have not applied such efficiencies in their own tech stack.
- Wire transfers are still the dominant method used to invest in Web3 startups.
- Wire transfers are still the dominant method by which managers raise capital from LPs.
- Bank accounts are still the dominant cash custody method.
- Traditional fund administrators manually reconcile transactions, update cap tables and track management and performance fees.
- NAV is often calculated by hand using spreadsheets and verified by fund administrators.
- Identity Verification (KYC, AML) is often outsourced and verified manually.
However, with blockchains reducing cost and trust assumptions, middle and back offices will be reduced to a minimum. As all costs are reduced to zero or variable, hedge funds, venture funds and SPVs of any size are now viable.
The entire funds services stack will be automated.