Blockchain: you’ve probably heard this word plenty of times by now, but do you know what it means? Better yet, what it can do for your private equity firm? When most people think of blockchain they think of the Bitcoin, which is just a cryptocurrency. However, blockchain is actually the technology behind those cryptocurrencies. It’s what powers the decentralized ledger of unchangeable transactions. Take a look at the following four reasons why it’s time to embrace blockchain for private equity:
Why should your private equity firm use blockchain?
1. Irreversible records: Since records are irreversible and unchangeable, there is only one version of the truth. Blockchain technology permits any variation of the data and is fully traceable throughout its trail.
2. Increased security: Within the last few years the financial industry has seen an uptick in cyber threats and is a prime target for cybercriminals. Luckily, blockchain has the capability to reduce risk and fraud. Since users (and cybercriminals) are unable to change or reverse records, fraud is reduced or eliminated.
3. Efficiency: Closing transactions can take a long time, but using blockchain technology can help. This can be done by increasing your PE firm’s operational efficiency by simplifying and smoothing workflows between multiple parties and when transferring ownership. Instead of taking multiple days to settle by use of traditional banking, blockchain technology can reduce this to one day or even a few hours. Payments can be verified, tracked, processed and distributed on one blockchain.
4. Gain a competitive edge: Your private equity firm can get ahead of the competition by finding opportunities in underlying portfolio companies, which could increase profit margins and grow your exit multiple.