Xinova, a Seattle-based invention network, and Arc, a New York-based fund management firm, are teaming up to launch a new online capital marketplace that lets investors fund innovation projects on one platform across borders without the need to issue traditional securities or use manual transaction methods.
The new joint venture is called Arcnet, which the companies describe as the world’s first open-investment network that uses blockchain and distributed ledgers to automate processes related to early-stage innovation projects such as authentication, compliance, and accounting.
Xinova, which spun out of Seattle-based Intellectual Ventures in 2016, operates a network of more than 12,000 inventors and helps match their ideas with customers that need related solutions. The company, which employs more than 100 people globally, will help build out the technology for Arcnet while Arc will offer its financial expertise.
Brad Roberts, global head of network platform at Xinova who joined Intellectual Ventures in 2010, will lead Arcnet as CEO and co-founder. Roberts said there is a “massive failure to properly fund innovation,” calling out the narrow scope of investment vehicles such as venture capital or private equity, and the corporate interest of traditional R&D projects. That’s what led Xinova to creating its own capital network in partnership with Arc.
“It will both service the type of innovation projects Xinova is working on, but also bring about a major change in the way you can finance a transaction across project funding, across the innovation space, and globally as you cross borders,” Roberts said.
Arcnet brings the role of a bank, exchange, and broker into one decentralized platform. Brian Wisk, CIO at Arc who is co-founder of Arcnet, said the model “un-tethers us from structural mandates” associated with traditional investment processes.
“The universe of investable ideas is limited by things like the life or the liquidity terms of these various investment vehicles,” he said. “We hope to not necessarily replace those, but open up a whole new horizon where we can tailor the structure of the investment vehicle to appropriately match the life of the investment and not have some thick structure that was created to make it easier for consultants and dealers to sell product.”
One of the first listed projects on Arcnet is a venture that invests in fleets of zero-emission buses throughout Latin America. Arcnet is bringing together various stakeholders who want to pool assets for the bus project and managing the financing in one place with distributed ledgers and blockchain tech.
“Even though citizens and government alike see immense value from a zero-emission solution, no individual stakeholder could solve the problem alone,” Adam Sherman, partner at Arc, said in a statement. “So, we built a consortium of electric vehicle stakeholders spanning four continents to assemble the fleet and related infrastructure.”
Arcnet makes money off advisory and transaction fees while also having the option to take equity in projects. Roberts said that by keeping everything within one regulatory framework and using a general ledgering system, those fees are reduced from what’s traditionally charged today.
“Having been through a series of audits and transaction management fees, it is incredibly painful to see how much time and energy goes into overhead that is just antiquated,” he said. “It’s exciting to talk about how we can wash away a lot of that pain.”
Arcnet is targeting investments ranging from $50,000 to $100 million per project and plans to fully launch the platform in 2020.