In a significant move to transform the $6 trillion asset-backed finance market, Galaxy Ventures, the venture capital arm of Mike Novogratz's Galaxy Digital, has led a $20 million funding round in Fence, a startup dedicated to streamlining the operational layer of structured credit deals. The round also saw participation from Parafi Capital and Crane Ventures. Fence's innovative approach involves developing software to handle the intricate processes of tracking loan pools, verifying collateral, and managing cash flows, which are often fragmented and reliant on outdated methods such as spreadsheets, PDFs, and email. This outdated setup can lead to slowed transactions and reduced visibility for investors into the assets backing their investments.
According to Juan Montero, co-founder and CEO of Fence, the company aims to introduce a unified system that provides real-time data updates, enabling lenders to continuously monitor loan performance and cash flows rather than relying on periodic reports. This streamlined approach has the potential to significantly cut costs for major asset managers. In collaborations with BBVA, one of Spain's largest banks with assets totaling $800 billion, Fence has demonstrated its ability to reduce funding costs for borrowers and decrease operational workload while efficiently tracking large volumes of loans.
Notably, Fence utilizes blockchain technology as a back-end solution rather than a front-end product, focusing on the use of smart contracts to manage cash, collateral, and the rules governing these deals. This approach allows for the automation of processes that would typically take days, such as waiting for loan data to be verified, reports to be generated, and payments to be cleared. Fence achieves this by pulling information through APIs, running checks in software, and using smart contracts to release cash once deal terms are met.
Additionally, the company can tokenize lender positions in financing vehicles and, in certain cases, the underlying loans or invoices, facilitating the transfer of positions, borrowing against them, or receiving automatic payments in the event of ownership changes. However, tokenization is only employed where it adds tangible value. Montero emphasized, 'We don't want to be perceived as a blockchain company; we're focused on building the infrastructure for capital markets.' The company has made significant strides, currently overseeing approximately $1.5 billion in assets across its platform, with partnerships including BlackRock and Fortress. It can onboard new deals in a matter of weeks, a significant reduction from the months required under traditional processes.
The newly secured funding is expected to facilitate the company's expansion in the U.S. and further development of its product, with the ultimate goal of reshaping the credit markets through faster data processing and reduced manual steps.