Pipeline: Securing the Future of Business Capital

October 10, 2022

By: Scott St. John

Many of today’s household names began as humble startups in their founder’s dormitories, garages, and spare bedrooms years ago. Bill Gates (Microsoft), Elon Musk (Tesla), Mark Zuckerberg (Meta, parent company of Facebook), and Steve Jobs (Apple) all started similarly— with not much more than vision, passion, and determination. That all changed with one simple but monumental and extremely challenging thing: access to capital.

These represent startup success stories. The companies that have unlocked the promise of innovation, economic growth, and wealth did so within the startup business model. Winners aside, there are millions of startups worldwide, creating new products and services by tackling some of the world’s most pressing problems. Some of them are undoubtedly tomorrow’s next household names. The stakes are high and so is the opportunity. In the United States alone in 2021, the value of venture capital investment in early-stage or first-round funding was estimated at nearly $77 billion.  

Access to capital is critical to innovation but securing initial funding is daunting. Navigating the process can be the single greatest challenge entrepreneurs face. The process itself can inhibit access to funding and, ultimately, stifle innovation. Of course, not every startup should be funded, but it should be easier for those that deserve it. For those that do, accelerating innovation and speeding time to capital requires addressing the due diligence process with the application of new, emerging technology. Due diligence—a thorough verification, investigation, and audit—is the most important and lengthy process of any potential deal or investment opportunity and can end up being the most critical and complicated stage (and often where deals die).

Deal Box represents an excellent example of innovation in the arcane capital raise domain. The company is also demonstrating how emerging technologies can be applied to transform capital markets. It’s also intriguing how this innovation may be applied to a wide variety of future use cases. Pipeline recently had the opportunity to explore these possibilities, and the application of blockchain and the Universal Communications Identifier (UCID) to accelerate and secure the future of first-round funding, with Kevin L. Jackson of Total Network Services.

For TNS, it’s one of several innovative projects. With Forward Edge-AI and Rypplzz, the company is developing the Electronic Medical Mobile Application (EMMA) as the first blockchain implementation at the US Census Bureau, United States Department of Commerce. The objective of EMMA is to create a superior customer experience by streamlining the medical claims process while securing devices and data with blockchain with the UCID service. Now with Deal Box, TNS is applying these emerging technologies to enhance trust, transform the investment due diligence process, accelerate access to capital and unlock innovation. By applying the same cutting-edge technology and methodologies as EMMA to secure devices and data, TNS is now collaborating with Deal Box to extend the applications of these technologies to the investment capital industry by securing digital assets and documents.

Reducing friction from due diligence

To accelerate access to capital, it’s important to first understand the challenges of the traditional investment due diligence process. It involves preparing due diligence documents, financials, corporate governance, and legal filings. With an 80-point document checklist, 30 or more individual documents, and the necessity of meeting regulatory compliance requirements, preparation is rigorous. To add complexity, multiple parties need visibility into and access to various documents, many with highly sensitive contents. Ultimately, successfully preparing for and navigating the due diligence process builds trust between prospective investors and the companies that will be able to accelerate innovation with their investment.

Trust was once built on the bedrock of physical and personal human relationships, where a simple handshake would do. In an increasingly virtual world though, establishing trust can be elusive and difficult—and the friction of the due diligence process can hamper it. What’s needed is a democratization of funding to build trust for all parties involved—faster and more easily. The process is an ideal application for the blockchain, a distributed ledger shared with the nodes of a computer network to guarantee cross-network security and fidelity of a record and data.

Blockchain and UCID for due diligence at Deal Box

Deal Box is the creator of Investment Packaging, a fundraising process designed to consolidate the disparate resources in the capitalization value chain. Through it, Deal Box brings together everything companies need to be investor-worthy in one package: pro forma valuation and financial models, automated legal filings, corporate governance and data room set-up, and an offering portal with reporting and analytics. Founded in 2005, Deal Box has over 500 packaged clients with more than $200 million in deal flow.

Now with TNS, Deal Box is enhancing and transforming the due diligence process by bringing key aspects on-chain. This is critical in our shift to a virtual world, as the financial network must keep up with ever-higher levels of data protection and identity security. By leveraging the blockchain and the Universal Communications Identifier (UCID), a unique identifier for a device—or in this case any digital asset—on a network, Deal Box’s process can verify documents, ensure regulatory compliance, and provide a high level of cross-network security for sensitive documents without revealing the contents. It’s a transformational step toward redefining capital markets and accelerating innovation. UCID is a solution for securing physical and digital assets. It’s similar to radio frequency identification (RFID) technology, which encodes digital data in tags or smart labels captured by a reader via radio waves and stored in a database. UCID goes beyond RFID in applications for tracking virtual assets and amplifying security by putting this process onto a permissioned blockchain.

Creating programmable trust

UCID has very specific applications and advantages for enhancing the due diligence process. These include document provenance and pedigree. Provenance concerns who created the document, who has seen it, and where it has been. Pedigree is about quality—accuracy, completeness, and compliance with regulatory standards, ultimately influencing the trustworthiness of document contents. Implementing UCID and bringing it onto the blockchain amplifies the provenance and pedigree of the documents by creating programmable trust. The documents themselves are not stored on the blockchain. Only the transactions associated with the documents are recorded on-chain, such as which party viewed or modified a document. The contents of the documents—in any digital format, including Excel, PDF, PPT, Word, and so on—remain in Deal Box’s central repository, a cloud-based document storage solution. The UCID verifies the documents and keeps track of changes and digital signatures, which are recorded on the blockchain with the UCID. Investors can verify the pedigree of the documentation, and third-party regulators can review and approve document workflows without viewing the sensitive contents, which avoids violating restrictions like Personally Identifiable Information (PII). Various levels of encryption and blockchain-based permissions define who can see—and verify—workflows and document contents. UCID metadata is the key. Metadata fields enable specifying which individual or role has access to the data. In addition, the UCID and blockchain-based permissions can support visibility and governance for international transactions. Because UCID was initially designed for verifying devices, access to the contents on the blockchain can be geofenced, and access can be limited based on specific devices across the network. By extension, on the broader network, users can be managed via encrypted identity, and data managed via standard encryption. This reduces the amount of fenced data that needs to be transferred across the network and maintains visibility for regulatory requirements that may differ by country or region, such as compliance with the European Union's General Data Protection Regulation (GDPR).

The UCID verifies the relevant transactions that occur on the verification blockchain. This enables cross-chain mobility and interoperability, essential as the use of blockchain continues to evolve. There will never be a single blockchain. This means blockchain interoperability will be a key consideration from a future-proofing perspective to navigate the inevitable shifts, changes, and disruptions, and to contend with the potential of other emerging scenarios such as the development of nation-state Internets.

Accelerating future innovation and trust

Bringing the due diligence process onto the blockchain ultimately enhances trust for all parties involved, accelerating time to capital and fostering innovation. Going beyond investment packaging, the technology offers promise in a range of other applications that also present friction and would benefit from enhanced trust.

Think about the Internet of Things. Connected devices already outnumber us two to one. IoT data and associated workflows will need to be secured on an immutable blockchain ledger for accountability and security. As the IoT becomes an ever-more essential part of daily life, and as we push into the future of smart cities, smart cars, and smart everything, bringing these devices and processes on-chain is of paramount importance.

As the metaverse takes shape, virtual real estate is becoming a hot commodity and another potential use case. Some of the world’s biggest celebrities and companies, in sectors from entertainment to banking, are staking out virtual territory for as-of-yet undeveloped immersive experiences and events. This “digital land-grab” drove digital land sales of over $500 million in 2021 with a projected compound annual growth rate of 31 percent through 2028. These virtual assets and related transactions will also need to be similarly secured.

The world is becoming increasingly virtual, and trust is becoming more elusive. At the same time, innovation and security hinge upon it. Technologies such as blockchain and UCID are here, and companies like TNS and Deal Box are using them to address these critical areas today and continuously innovating to extend them well beyond as the world evolves.

Original Article