The first private equity fund administered by blockchain technology will launch in mid-January, according to the fund’s managers.
Mainstreet Investment will be managed as a joint venture by Charlie Shrem of Mainstreet Investment and Jason Granger of Intellisys Capital. It will target investments in US mid-market companies, real estate and blockchain technology companies, but will avoid high-risk start-ups in the space.
It will raise funds by distributing a blockchain platform-based token called Mainstreet Investment Token, which can be bought by non-US investors and accredited US investors between January 15 and April 15, 2017.
The fund will be administered by the blockchain platform – including all payments and dissemination of investor information.
“Mainstreet Investment is the first private equity investment offered as a digital ledger security that will change the landscape of middle market investment with a decentralized approach,” said Granger. “Providing liquidity and dividends to investors through the first digital token backed by hard assets will change the landscape of private equity investment on the blockchain.”
A blockchain is a digital ledger containing cryptographically encoded blocks of data in a chain. One block of data depends on the blocks before it, with information shared between all parties. It also incorporates so-called smart contracts, which are programmed to generate instructions, such as payment, once conditions are met.
They enable various concerned parties to see and swap information in almost real time and for this information to be updated instantaneously. They can also make and verify transactions on a network without a central authority or clearing house, and without the need for intermediaries.
Private equity firms can harness the technology in a number of ways, but its widespread use is a little while off yet, according to one lawyer.
“Instead of using data rooms, you put the data on the blockchain,” Gregory Nowak, partner and hedge funds practice leader for the law firm Pepper Hamilton, said.
“When private equity is preparing a portfolio company for sale, all pertinent information is on a blockchain and available to any interested party. ‘Hey, you want to buy this company, here it is, it’s all on the blockchain,’” he said.
But he added the revenue model for blockchain as a disruptive technology is yet to be developed fully.
“While private equity firms love the technology, I still think people are keeping their powder dry,” Nowak said.