This month, Australia and Sydney had the honour of hosting WorldPride2023, celebrating differences and the multifaceted nature of community and society.
Unfortunately, diversity is still lacking when it comes to the investment space. Private capital markets remain closed and elitist, contributing to a lack of transparency in the ecosystem. However with the digitisation of wealthtech and now tokenisation taking hold, we’re starting to see things change.
Wealthtech, digitisation and tokenisation
The democratisation of wealthtech will have a profound impact on diversity and inclusion in the startup ecosystem by helping to level the playing field for those traditionally excluded from the startup ecosystem.
As I’ve mentioned previously, wealthtech is the convergence of digitisation and investment. Powered by Web 1 and Web 2 technology, wealthtech has created fully automated digital investment marketplaces that put management in the hands of many. However, at its core, this initial evolution simply digitises previously manual processes.
But now comes Web 3 and tokenisation. Decentralising the data structures in the internet’s backend means there’s no single point of failure and no central authority controlling information. With blockchain technology driving Web 3, we’ll have a tokenised internet that users and builders own. This brings a plethora of benefits.
- Reduced barriers to entry: traditional financial systems often have high barriers to entry, such as minimum investment requirements, paperwork, and geographic restrictions. Tokenisation allows assets to be divided into smaller units that can be easily bought and sold, without the high costs of brokerage. People with limited financial resources can then invest in assets previously out of their reach.
- Access to new markets: tokenisation can help open up new markets by allowing assets to be traded 24/7 across different countries and time zones. This makes it easier for people in emerging economies to invest in assets that are only available in developed markets or vice versa.
- Increased transparency: transaction data is now tamper-proof, as a digital record of all transactions is visible to all participants in the network. Cybersecurity is also at its peak because cryptographically-secured assets are impossible to counterfeit.
How this leads to a more inclusive startup ecosystem
Traditional capital markets have always been characterised by a lack of diversity and unconscious bias. While evidence shows that diversity in leadership enhances business performance, overcoming years of old-school thinking is challenging.
In fact, a recent survey from Proud Ventures, a network of LGBTQ+ venture capitalists and angel investors, found that 75% of UK LGBTQ+ startup founders conceal their sexual orientation or gender identity for fear it may impact fundraising efforts.
Socio-economic factors, including gender, LGBTQ+ status, disability, disease, mental health, race, ethnicity, and country or region of origin, are all areas where tokenisation can help to promote greater inclusion. Millions of potential venture capital investors around the world have previously been locked out of participation. This leaves founders with limited access to the true universe of available investors.
By increasing the size and diversity of the group making decisions related to investment opportunities, we increase the accuracy of responses and improve the efficiency of private capital markets.
Addressing the supply-demand mismatch
Tokenisation can help to address this mismatch between the supply and demand of capital. By increasing the number and diversity of people who form a view about whether consumers will buy what a particular company is selling, we increase the accuracy of the response.
Take, for example, Australian wealthtech, Super Fierce, a platform and social enterprise that helps women close the gender wealth and retirement gap. Founder Trenna Probert calculated that the average Australian woman who chooses to become a mother will face a $283,000 hit to her superannuation savings by the point of retirement.
Super Fierce’s advisory platform aims to close this retirement gap, an issue that traditional superfunds and advisory firms are not addressing. It is only because Probert looked at this inequity through her own experience, she saw that it needed to be rectified. Super Fierce’s whole premise came about because of a diversity of thought.
The efficiency of private capital markets can be improved with broader investor participation, especially when those people are also potential customers. In lean startup theory, early-stage founders are encouraged to test consumer appetite before pouring millions of dollars into continuing to develop a product. Eric Ries, inventor of the lean startup approach calls this validated learning. By validating ideas through a diverse, varied crowd, we can obtain one of the most important indicators of future business success.
Overall, wealthtech has the potential to promote greater inclusion in finance by providing more people with access to investment opportunities and reducing barriers to entry. Together, we can embrace technology and harness the power of individuals coming together to take action and back what they believe in.
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