The Era of Tradable Startup Investments

January 16, 2024

Crypto investors are accustomed to a degree of control and flexibility that's almost unheard of in traditional markets. They can buy, sell, and adjust their holdings in real time, responding swiftly to market changes or shifts in their own investment strategies. This agility is a stark contrast to business angels in the world of startup investing, where investments are often locked in, immovable for years.

In this article, we explore this emerging trend of making startup shares as liquid and tradable as cryptocurrencies.


The Crypto Market as a Model for Liquidity

Crypto startups often have a tradable token since their inception. While these tokens are not equity, their behavior in the market often mirrors that. They allow for an investment environment akin to the stock market, where the valuation of companies fluctuates based on not only their internal growth and performance but also broader market trends and investor sentiment.

Crypto investors actively manage and adjust their portfolios in response to market fluctuations, news, or their own investment goals. The agility to pivot strategies, whether to mitigate risks or capitalize on emerging opportunities, is a significant advantage. It allows for a dynamic investment approach, where decisions can be as responsive and fast-paced as the market itself.


Implications of Illiquidity for Business Angels

Drawing parallels, this level of liquidity and active portfolio management is absent for business angels investing in traditional startups. Business angels are often locked into their investments for extended periods, with little opportunity for active portfolio adjustment or quick exits. The illiquid nature of these investments means that business angels cannot readily capitalize on short-term market dynamics or adjust their exposure based on changing investment goals or risk appetites.

The inability to exit or adjust positions in response to the startup's performance or market shifts. The lack of liquidity means that business angels are often unable to capitalize on positive developments in the short term or to mitigate losses when a startup's prospects dim.


Case Studies: Learning from the Crypto World

To illustrate the benefits of liquidity and active portfolio management, let’s examine some real-life examples and hypothetical case studies from the crypto world. These cases highlight how the principles of liquidity and adaptability can be beneficial in managing investments.


These case studies from the crypto world underscore the importance of liquidity and the ability to actively manage portfolios.


Simulation: Adjusting a Portfolio of Tradable Startups with Market Dynamics

Imagine an investor, Alex, who has a diversified portfolio of tradable startup shares. Alex’s portfolio consists of shares from five different startups, spanning sectors like technology, healthcare, and green energy. Each startup is at a different growth stage and has varying market capitalizations.

This hypothetical example paints a picture of how a liquid and flexible market for startup shares could empower investors to make informed, timely decisions, paralleling the responsive nature of crypto trading.


The Technology that Makes This Possible

The transformative idea of making startup shares as liquid and tradable as cryptocurrencies hinges on two technological cornerstones: the tokenization of assets and decentralized exchanges (DEX).

Tokenization of Assets:
  • Tokenization refers to the process of converting rights to a financial asset into a digital token on a blockchain.
  • In the context of startup shares, this means each share or equity stake in a startup can be represented as a digital token, making it easily tradable.
  • The Swiss DLT Act has provided a legal framework for such tokenized securities, ensuring they have the same legal standing as traditional securities. This is a significant step forward, as it clarifies the legal status of tokenized assets, providing confidence to both issuers and investors.

Decentralized Exchanges (DEX):
  • DEXs are platforms that facilitate the trading of digital assets without the need for a central authority. They operate on blockchain technology and provide a transparent, secure, and open environment for trading.
  • For startup shares, DEXs offer a platform where these tokenized shares can be traded freely, akin to cryptocurrencies. This includes features like real-time trading, price discovery, and immediate settlement.
  • The decentralized nature of DEXs aligns well with the ethos of startup investing, offering a democratic and accessible platform for a wide range of investors.


The combination of tokenizing startup shares and trading them on DEXs creates a powerful synergy. It not only ensures the liquidity of startup investments but also opens up these investments to a global audience.

This technology enables startups to raise capital more efficiently and gives investors - including business angels - unprecedented flexibility in managing their startup portfolios.

written by
COO & Co-founder of Arcton