Small to medium enterprises serve as the backbone to many of the world’s developed and emerging economies. These are companies with fewer than 250 employees, who contribute up to 60 percent of total employment and up to 40 percent of a nation’s income (GDP) to their economies according to the World Bank.
Despite their contributions, the biggest challenge that most SMEs face today is one of limited access to capital. SMEs often turn to banks to ask for a loan but are rejected because of their inability to supply enough collateral, audited financials, references, proofs and other forms of documentation. Through the tiresome application process, only a very small number of businesses get the support they need to grow, while the vast majority must rely on internal funds or loans from friends and family.
Traditional fundraising mechanisms like crowdfunding, IPO’s, or venture capital are all severely limiting in their own ways. In a January report from the Organisation for Economic Co-operation and Development (OECD), the think tank outlined some of the advantages that ICOs offer for startups looking to scale.
The Downside of Traditional Financing Mechanisms
IPOs are a highly regulated and restrictive fundraising mechanism that primarily favor accredited investors and companies with deep enough pockets to pay for the privilege of being listed on the stock exchange. Crowdfunding sites (although much more accessible than IPO’s) are primarily set up for charity and non-profit initiative and lacks the sophisticated infrastructure required to transfer company shares in a secure and transparent manner.
Venture capital is far too insulted and built on pre-existing relationships for SMEs that are not already part of the ecosystem to benefit from. Finally, banks tend to be highly risk-averse and stringent in their requirements,