Swarm Fund is a blockchain for private equity, creating a unique market infrastructure built on blockchain technology that enables investing cryptocurrency into real assets and deploying traditional capital into crypto markets in a new way.
Swarm is built for crypto investors who want to de-risk their portfolios, Family Offices looking for a more efficient way to invest into crypto and alternatives, and everyday retail investors searching for access to opportunities that were not accessible before. With a legal and regulatory framework compatible with institutional investors, automation to remove middle men, and prioritizing access for all, Swarm’s goal is to streamline and help double the Private Equity industry from $2.5 trillion to $5 trillion in the next five years.
“Since the public token offering in October last year, we’ve been hard at work focusing on delivering product and have hit every milestone along the way,” said Philipp Pieper, CEO and Co-Founder of Swarm. “Keeping true to our mission of democratizing finance, we hope that this will serve to encourage even more people to participate in, help grow, and benefit from both the Swarm community and cryptocurrency community as a whole.”
Pieper is avid investor in start-ups within blockchain, TV/video, and IoT, while advising several companies (e.g. Mozilla, Shopkick, Qwiki, iCharts, Intertrust / Personagraph) and mentoring start-ups at accelerators such Stanford StartX, Singularity University, and TechCode. He has been the founder and CEO of Proximic, a global data provider for digital media buyers (acquired by comScore in 2015). He started his career in supply chain management for Sony, out of which he co-founded his first start-up, Tadoro, in 2000, an electronic data exchange for the consumer electronics industry.
With a structure similar to a co-operative, Swarm Fund is owned by members who determine the direction of the platform and network through a liquid democracy governance system. By leveraging Artificial Intelligence and blockchain technology, Swarm provides an entire platform from which businesses can create cryptocurrency-based enterprises with a wellspring of built-in funding.
CEO Philipp Pieper talked with Block Tribune about the direction of the company.
BLOCK TRIBUNE:: You’ve been involved in a number of sectors and startups. What is it about blockchain that appeals to you?
PHILIPP PIEPER: I originally came from the supply chain industry, working for Sony. Then I actually went into financial services to private equity and then ventured as a tech entrepreneur into digital advertising. And I operated and ran a company that we eventually sold in the online advertising space doing data services for some of the biggest agencies and biggest advertisers. When you take a step back after selling a company like that, I felt always like, ‘Is my goal in life to actually just slightly change the numbers of people doing click-thru and actually buying more stuff? Or is it maybe a little more meaningful than that?
And so I had started to engage in mentoring at Singularity University, looking at some of the bigger problems the world has and how technology can help actually solve some for that. And in that context, stumbled into topics that were connected with blockchain. So I looked at decentralization and looked into how networks like bitcoin work and, as a result of that, you start to get exposed to these topics. It’s a fascinating Utopian vision of actually being able to change the architecture of how individuals act in this day’s age and using their data and how they can self-determine what to do. So that captured my attention and imagination, and in the end also just fascination with a very young crowd of people that had a very big impact. That’s how I entered into it.
BLOCK TRIBUNE:: Okay. So now you’re starting something that was termed to me a “Blockchain for private equity” using a number of other technologies to facilitate same. Is that an accurate picture?
PHILIPP PIEPER: It is.
BLOCK TRIBUNE: Okay, tell me about the picture of that, what it looks like, and how it’ll work and your goals for it.
PHILIPP PIEPER: The goal that we have is to democratize investing. Meaning that in today’s day and age and in normal financial markets, a lot of opportunities are being kept away from normal investors. From investors that don’t have the means to engage in minimum capital commitments or don’t have the liquidity to actually commit that capital for a longer period of time. So if we can change the way that this becomes accessible, it actually opens up a wealth of people engaging in investment opportunities that so far weren’t in it.
Secondly, the industry is really convulsed with a lot of inefficiencies. And inefficiencies is a mild word when it comes to middle men, right? If today someone wants to invest into an alternative asset class, especially if you look at a family office in Southeast Asia, for example, it takes a number of steps, 6 to 7 steps, of banking, advisory, constituents that eat something out of the pie. So it becomes almost an impossible scenario that is dreadful because it shouldn’t be that way. So if we can connect the dots a little more directly and still give people the confidence that they can move in and out of those opportunities, then things happen that normally wouldn’t have happened. There’s capital that is going to be deployed that before that, wouldn’t have been deployed.
If we can take those two factors, we believe that, not just for the private equity industry, we can make it grow, but we can produce wealth in consumer groups or investor groups that normally wouldn’t have existed. So it’s actually redistributing all the growth that is happening in the sector and giving the opportunity to people that normally would’ve been disenfranchised from the system.
BLOCK TRIBUNE: Okay. Well how do you set this up? So you mentioned the scenario of a private office in Asia. What will they do? Where will they go? How will it work for them?
PHILIPP PIEPER: Okay. So let’s start from the other end. What we do is basically, we built a framework of security tokens, the first of its kind actually in market today. Which means we built a legal framework, a consensus framework and a technology framework to tokenize underlying assets. And we’re starting off by tokenizing so called LP positions and funds. So these are limited partner positions in funds that have been in operation for years and years that have track records. It’s very easy to instill confidence because of that fact. And when they’re tokenized you basically then expose them to a qualified group of investors that have signed up and said “We want to invest in security tokens,” so we do AML and KYC and investor accreditation where necessary of the investors that want to come in.
So who comes in? These are two main groups of people that come into this network or this platform which is blockchain based, right? So you basically qualify and then are able to invest. You can look at the opportunities and invest and then, over time, also able to de-invest, because the tokens become tradeable. So the two groups are, number one, these are crypto-insiders that have made most of their net worth in crypto that have 90% plus of their net worth in crypto.
It might be a good idea in this day and age to de-risk maybe 10% to 30% of your holdings, and de-risk means that you can, with these opportunities, you can go into asset classes that are detached from the normal market volatility of crypto. So you can then actually say it’s still crypto, but you’re actually putting it in a different risk category with different metrics, more stable than it is in the pure cryptocurrency market.
The second group of people was the one that we touched on earlier. It’s actually sort of the family offices and the retail investors, high net worth individuals from abroad that are looking to invest into US dollar-denominated opportunities or Euro-denominated opportunities that are attractive to that group of people. By actually allowing them to come to a network like this one, to sign up, to get qualified, to actually then be able to upload their crypto or fiat currency into that scenario while still being regulatory compliant with all the regulations where we are operating these opportunities. It becomes a very easy way for them to go into the opportunities, maybe have a more risk-distributed profile of how to invest in these things and then over time you can be able to de-invest because there’s liquidity on the tokens.
BLOCK TRIBUNE: Okay. So how do you qualify for this? What is the minimum?
PHILIPP PIEPER: Well, the qualification depends on where the investor comes from and what the investor invests into. So there’s a unique situation, if it’s a US person investing in a US company or it’s a US person investing in a European company. There’s differences and regulations in core requirements. Generally in the US, we have to qualify for investor accreditations, so there’s no way that we can actually go around that. Most countries we actually have on qualified minimums, you can come in as a retail investor as long as you qualify. You can invest as little as a couple cents to a couple dollars, but there’s no minimum of investment. By the way, the same applies to United States. As long as you qualify as an accredited investor in our sense, in our platform, there’s no minimum of what you have to invest to participate.
BLOCK TRIBUNE: Okay. Now these opportunities are available for people in United States and most countries I take it. Are there any restrictions?
PHILIPP PIEPER: Well, so we have, obviously, under different regulations and not just SEC regulations. So there’s a type of different country that are sort of sanctioned, and should be non-engaged with. But other than that, no. China is also on the list of what’s possible. We’re engaged there and this is not just for them to invest into US opportunities, but to local opportunities. So we’re going to be traveling, for example, to Japan next week where there’s a group of syndicate leaders that are putting together syndicates on a list on Swarm and actually make that available to their local investor groups for some of their organization issues that are in Japan.
While that’s happening locally, they can still expose it to the global community of investors that have signed up.
BLOCK TRIBUNE: Are most of these financial funds or are there any invested in real estate or anything like that?
PHILIPP PIEPER: No, there’s a bunch of real estate. So we went live on January 29th and we had started off with two funds that we had some relationships with previously. One is actually a distressed real estate fund that uses AI to discover distressed real estate in the United States. The other one is actually funds to do pre-IPO tech stock. So they acquire the likes of Uber and AirBnb and DocuSign and then basically all the companies that are one to three years before their IPO to just capture that last push of value.
And since then, we now have a pipeline of 35 funds that are going to be coming through the platform, but the topics range from, I would say, 1/3 is real estate, 1/3 is the likes of private equity, renewables, and so forth, and then 1/3 is crypto-related. So all the bigger crypto funds have been structured in the same way as normal funds. Meaning, that they have their LPs, they have their minimum buy-ins to actually get into a certain fund while they’re actually investing into digital assets. For them, it’s quite attractive to actually work with a platform like us to actually make that accessible to people that cannot afford that, that have a different criteria as to why they invest. Yeah. That’s a bigger group.
And then there’s a small, tiny, tiny group of projects that are quite exciting that are more impact-related. So things that normally don’t have the platform to appeal to the global financial markets that are solving, I don’t know, the fertilizer distribution in Africa using blockchain and solve a certain problem. They are awesome, deep sea oceanic mineral mining that actually can solve some part of the cobalt problems and electric batteries and which are 99% being mined by children in Kenya. So there’s a group of interesting funds that have been surfacing that have a different appeal than purely ROI but clearly they’re in the minority, but a growing category.
BLOCK TRIBUNE: Your company does not do anything other than vet the funds that you’re taking in and then basically handling any issues with onboarding? What exactly will you be doing once you have your blockchain established?
PHILIPP PIEPER: I think is worthwhile understanding we’re a non-profit organization. So we’re not in here to become the next middleman in this equation. Quite to the contrary, we’re trying to get rid of the middleman. The way that we’re doing it is that the token ecosystem that we built is meant to, sort of, blow up the value chain of private equity, get rid of the middlemen, and then reassemble the parts that are, today, successfully delivering against us into a new shape and form.
So, I’ll give you an example that we’re talking to KPMG of Cayman Islands and we have been approached by them to say, “Well, we want to offer standardized services on the network,” which include due diligence services and legal services. How can we make that happen, that someone who’s requesting this in this whole chain of what I described, that they get the highest level of service by a company that actually is in existence and is way more knowledgeable of both. But doing these things that actually us and the individuals would be doing. If I paint the picture in 12 to 18 months down the road we successfully, by that point in time, instead of the integration of professional service companies actually offering their service in this network and we as a foundation can step back from those functions and actually fully focus on actually building out the picks and shovel the software tools that are needed to actually operate this successfully and related model that are built on top of it.
BLOCK TRIBUNE: You’re going to take your investments in what cryptocurrencies?
PHILIPP PIEPER: So far, it’s in ether and bitcoin. We’re opening up to fiat currency in a few weeks and that’s purely for the reason of actually that there is liquidity there. But there’s no reason why we shouldn’t be expending that into the top 10 most liquid coins, because obviously on the back end that’s one part of the function of what we deliver is once the investment has been decided upon, it reaches a minimum of investment deployment. Obviously we go to then transfer that into fiat currency and then the fiat currency actually gets invested into these opportunities. So you can’t go too much into the long tail of crypto to make that happen.
BLOCK TRIBUNE: What are your revenue streams going to be?
PHILIPP PIEPER: Well we’re a non-profit. We, at the beginning, obviously will fulfill some of the functions that I was mentioning so our token functions very much like the gas functions on the ethereum network. I’m sure you’re familiar with that. What happens is if there’s capita being deployed, there’s a capital allocation, gas that needs to be paid by the investor. On the other end, when the fund operates on the network, there’s a fund operation fee. And that pool of capital gets actually put forth to the people that deliver services against it. So at the beginning, the foundation fulfills some part of that, so part of the pool is going to go to the foundation. As I mentioned, actually very quickly over time there’s others that need to fulfill those functions and will and they receive those benefits.
BLOCK TRIBUNE: Tell me the details of your token sale.
PHILIPP PIEPER: So we did an ICO in September, October of last year. We were very restrictive on how we were handling this because, obviously, our pitch today is that we’re regulatory compliant security token framework and if you then run your ICO, violating security law is not a good position to be in.
We did a couple things differently than others, so we only took money in the United States, for example, from accredited investors. Then we actually did something called a liquidity token release, which means that right after the sale, the community voted on what time frame the token should be transferable and they decided that it’s gonna be within four releases of 25% each within 84 days each. So within a year, the token becomes fully liquid. The reason why we put these thing in place is that we wanted to really disincentivize pump and dump etc.. So we raised $5 1/2 million dollars in ether and that was when the ether was at $290. The tokens that were not sold, so there’s the token supply entirely of hundred million tokens. We sold 8.2 million tokens in that sale. There’s a bigger batch of tokens that the foundation still has access to that can actually lead to funding operations over time.
We really didn’t think that the ICO should have to be this one and all, be-all event that front loads all the expectations. But saw this more as an ongoing ability to fund a foundation’s operations to achieve its goals.
BLOCK TRIBUNE: Okay. Where are you based with this organization? Obviously, it’s multinational. But is there a headquarters?
PHILIPP PIEPER: The foundation is based out of Liechtenstein and we have most of the core operations servicing the foundation out of Palo Alto. We have teams in Australia, Ukraine, Czech Republic and Slovakia at this point in time. Each of them are distinctly working on different parts of the system and the market.