How tokenization reshaped this Swiss-Ukrainian startup’s funding path

Based in Switzerland with an R&D center in Ukraine, Vidby is a startup that specializes in AI-powered translation solutions. Founded by entrepreneurs Alexander Konovalov and Eugen von Rubinberg in 2021, the startup has quickly gained traction in the language technology sector.

Switzerland’s pioneering legal regulations on blockchain technology in August 2021 set the stage for Vidby’s innovative approach when it comes to its funding. In 2022, the company took the bold step by tokenizing its shares under Swiss law, offering them to private micro investors. This strategic move attracted approximately 300 investors, diverging from the traditional venture capital route.

By leveraging the Ethereum blockchain, Vidby successfully raised $12 million through tokenized shares, with over 2 million shares now registered as digital tokens or Vidby Shares SHA. This alternative funding model proved instrumental in fueling the company’s growth, with significant value growth rates and sales dynamics observed in 2023.

Since the inception of trading tokenized shares in July 2022, Vidby has managed to outshine other European startups, boasting an impressive 672% growth rate as of April 2024.

In an exclusive interview with IT Logs, Vidby’s CEO and co-founder Alexander Konovalov sheds light on the intricacies of its tokenization process.

Alexander Konovalov, CEO of Vidby

Alexander Konovalov: This approach primarily serves as a method for maintaining a shareholder registry, as well as for storing and transferring shares efficiently, quickly, and cost-effectively. It simplifies the process of acquiring property rights for investors, making it more accessible. However, it does not enhance investment competitiveness or increase investor traffic on its own; these objectives still require direct, proactive efforts. It’s important to note that tokenization is just one of many tools used. We do not only rely on tokenization but also actively engage in seeking investors, negotiating deals, and developing a robust system for sales and investor attraction. This required a significant amount of work. 

Here’s how it generally works:

  1. The company converts ownership shares into digital tokens, each representing a portion of the company’s equity. These tokens are created and managed using smart contracts on a blockchain platform.
  1. The tokens are then recorded on a blockchain, a decentralized and tamper-proof digital ledger. Each token contains metadata such as ownership details, voting rights, dividend entitlements, and other relevant information.
  1. Tokenized equity allows for easier transferability of ownership compared to traditional methods. Investors can buy, sell, or transfer tokens peer-to-peer without the need for intermediaries like brokers.

Tokenized equity allows for easier transferability of ownership, potentially increasing liquidity compared to traditional shares.

By leveraging blockchain technology, companies can attract investors from around the world, expanding their potential investor base and increasing their fundraising opportunities.

Companies can streamline the process of issuing and managing shares, reducing administrative overhead and transaction costs associated with traditional equity offerings.

Companies can leverage this transparency to build trust with investors by providing real-time access to ownership data, transaction history, and other relevant information, enhancing transparency and accountability.

By automating compliance processes through smart contracts and adhering to regulatory requirements for tokenized securities, companies can reduce the risk of non-compliance and associated legal issues.

Companies can explore features such as profit-sharing mechanisms, dividend distributions, voting rights, or other incentives to align investor interests with the success of the company and foster long-term relationships with investors.

Blockchain technology offers a secure and reliable method for maintaining a share register. It enables the transfer of share ownership in just minutes at a cost of $5 per transaction. This is a stark contrast to traditional bureaucratic systems, which can take weeks or months and typically charge $150 per transaction, plus an annual percentage of the company’s capitalization (sometimes it can be quite a substantial expense).

Vidby’s co-founders

Absolutely, blockchain technology greatly facilitates the process for private investors. It simplifies and speeds up the acquisition of shares that are not yet listed on the stock exchange, making entry much more accessible.

Success largely hinges on the capabilities of the company’s team. For instance, our team ranks as №1 in terms of growth and fundraising in Switzerland, while many others have not raised any funds at all during the same period.

Some companies may not prioritize it; they might simply transfer their share register to the blockchain, tokenizing their shares as an administrative step.

In contrast, we adopted blockchain initially to streamline the fundraising process and to facilitate micro-sales directly, without the need to approach venture funds. This strategy may be less appealing to traditional investors who are still grappling with understanding the nuances of blockchain technology.

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