Cross-border investment syndication has been a mess. Anyone who's tried to co-invest across borders has seen it firsthand, yet we've somehow accepted the status quo.
One of the biggest challenges is money movement. Not having money to invest is one thing. Having money to invest and being prevented from doing so because some system you're not aware of is blocking you is deeply frustrating. I think global systems, intentionally or unintentionally, have made it very hard for investors in emerging markets to deploy capital, especially folks with very, very small amounts. This has greatly reduced the number of people who can move funds from weak-currency regions to hard-currency countries like the USD, and those who don't have a million or more to use a private banker.
Right now, if you want to participate in an investment opportunity and you're based in Egypt or Nigeria, and the opportunity is with a platform in the UK or the US, you have to go to the bank, convert your local currency to USD, and make the wire transfer. Immediately, you are losing funds to FX, SWIFT, and bank fees. Assuming you are sending $10,000, you've already probably lost 5%. But that's the easy part. Now you are praying that the funds arrive at their intended destination. This process can take anywhere from 3 to 10 days, if the funds arrive at all. I've seen funds not arrive more times than I can count. The system blocks folks who want to participate in global investment opportunities but don't have the resources to navigate them.
Having syndicated over 150 investments over the past 6 years, we've found workarounds. We've had accounts blocked and multiple issues raised, making it increasingly difficult to deploy capital effectively. What's the point in spending $1,000 worth of effort and resources just to receive $10,000 for an investment? We've leveraged merchants of record to facilitate local currency collections. When moving NGN to USD, even with terrible rates, we know the conversion will be automated, and we will receive USD in our account. But merchants of record are not the most efficient or cheapest option, because when deals do not move forward, you have to send funds back to the investor in their local currency, and by the time they receive those funds, another set of FX fees has kicked in. The commitment and capital call process remains broken.
How broken, exactly?
A commitment is typically the act of an investor signalling their intent to invest in an opportunity. At this stage, they wait for the deal manager to issue a capital call before wiring funds. Deal managers make sure they have pooled commitments before issuing a capital call, and if the time between capital call and commitments gets extended, drop-off often occurs, the committed amount is lower, and there is back-and-forth between the deal manager and the founders.
What many platforms have done is give investors the option to send funds either at the time of commitment or at the capital call. Sending funds at the time of commitment reduces the risk of investors dropping out, but if the deal doesn't proceed, the platform will need to return the funds. It's usually an expensive process when cross-border investors are involved.
Right now, cross-border investment is expensive and locks out people without access to USD from opportunities that could make them millions. In a world where financial technology is evolving rapidly, I don't understand why this hasn't been solved yet. Well, we've been working on it.
So what's the fix?
Stablecoins!
A stablecoin is a type of digital currency pegged to a stable asset, usually the US dollar. Unlike Bitcoin or other cryptocurrencies, the value doesn't fluctuate. One USDC or one USDT is always worth one dollar. What makes them powerful for cross-border investment is that they move on blockchain rails, meaning transfers are near-instant, available 24/7, and don't require an intermediary bank to process or approve them.
Over the past couple of months, we've been building the Borderless Wallet, powered by stablecoins, to solve all the problems highlighted above. I've long thought about how to improve processes for capital calls, commitments, moving money in, and repatriating returns, and I think blockchain technology is where we can finally see significant innovation in money movement.
The Borderless Wallet
The way the wallet works is simple: you deposit funds for investment, use that wallet to make commitments and send funds for investments you want to participate in, and when your returns come in, you receive them back there.
Reducing cost
To reduce cost and increase speed, we are enabling investors to top up their Borderless Wallet with stablecoins, regardless of where they are located. This is the on-ramp: converting your local fiat currency into USDC or USDT that sits in your wallet, ready to deploy.
Here's how it works: an investor uses their local payment method to on-ramp their local currency to USDC or USDT. For example, a UK investor uses Faster Payments Service (FPS) to pay into a GBP bank account. Because GBP to a GBP account is instant, the funds are converted to USDC and deposited into a dedicated investment wallet. The same process applies to an investor in Nigeria paying in Naira or an investor in Egypt paying in EGP. You are meeting the system in your local currency, and the conversion to a stable dollar-denominated asset happens automatically on the other side. When returns come in, and you want to take funds out, the off-ramp works the same way in reverse, converting your USDC back to local currency and depositing it into your bank account or your mobile money wallet.
Fixing commitments and capital calls
When it comes to commitments, the current state will not change much. The future state will require an investor to have funds in their wallet in order to make a commitment. We will programmatically put a hold on the commitment amount in their wallet. This means they will not be able to spend those funds while the commitment is live. It also means any potential yield they can earn will be attributable to their full balance. If a deal doesn't proceed, no funds are sent back and forth around the world. The hold is simply released, and the funds remain in the wallet, ready for the next opportunity.
Once a capital call is triggered, a new, automated wallet is created, with a multi-signature required to release funds, and the funds are transferred to their intended destination. If a capital call is triggered and the deal doesn't proceed, funds are automatically returned to the investor's Borderless Wallet.
There are so many things we want to build by leveraging stablecoins and wallets, but that's a conversation for part two.
The future of investments will only be borderless if we leverage borderless technology to build it.
Thank you for reading.
Hi, I’m Joe Kinvi, and I’m building the stablecoin-powered investment infrastructure for emerging markets, starting with Africa. If you want to learn more about my work, please go to joekinvi.com