Last week our theme was “Bridges across the Chasm to the Pragmatists.”
Our theme for this week is “Top VCs investing during crypto bear market.”
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A new study published last month, showed an increase in VC funding in cryptocurrency and blockchain projects. Almost $4 billion was raised during the first three quarters of 2018 by cryptocurrency and blockchain startups, a 280% increase compared to 2017.
Last year, ICOs raised $5.5 billion, but during 2018 we’ve been seeing a shift to private sales. Initial Coin Offerings have slowed down. In April 2018, we had 129 ICOs raising around $600M, down from 215 and $1.2B in December 2017. In terms of dollars, we see a similar downward trend, excluding Telegram‘s private sale and the year-long EOS ICO.
The cryptocurrency industry has realized that raising money from professional investors, like venture capital, hedge funds and other strategic investors can offer more advantages, in comparison to small retail investors. Also, ICOs have become an expensive proposition, with legal, marketing, and advisory expenses. Venture-funded private sales can cover expenses, before the ICO sells its token to raise cash for the company.
The potential impact of blockchain technology spans far beyond digital currency. With the security tokens heating up, traditional investors are acquiring tokens outright with pre-sales, SAFT contracts, and taking equity positions in blockchain companies before an upcoming ICO. Pre-sale rounds are held before public ICOs, offering discounted tokens to early investors.
While both traditional fundraising and ICOs have pros and cons, traditional investors have always been a great way to raise funds, as startups are put to the test to meet the standards and scale in order to go to the next level. While public ICOs have democratized how startups raise money, retail investors that participate in ICOs can be more demanding, seeking to make a quick buck on their investment.
Blockchain is attracting huge investment, with the big boys all over the place. Household names like Andressen Horowitz, 500Startups, Future Perfect Ventures and angels like Tim Draper, Naval Ravikant, Roger Ver, and Barry Silbert have shown a continued and growing interest in funding blockchain projects. Some, like multi-billion dollar VC Andreessen Horowitz announced a new $300 million fund, specifically focused on digital assets like cryptocurrencies and blockchain startups.
In an interview to CNBC, Albert Wagner of Union Square Ventures said: “Investors are rationally pouring a lot of money into this sector, because I think people are seeing the winning blockchain here might be worth a trillion, or a couple of trillion dollars.”
Earlier this month, CryptoKitties raised $15 million to build more blockchain cats. The investment was led by Venrock with Google’s GV and Samsung Next joining in.
Coinbase added another $300 million of investment at a valuation of over $8 billion, to accelerate the adoption of cryptocurrencies and digital assets. The round was led by Tiger Global Management, with Y Combinator Continuity, Wellington Management, Andreessen Horowitz, and Polychain also joining.
StarkWare, an Israel-based blockchain specialist which commercializes a zero-knowledge proof system, raised $30 million from high profile names within the cryptocurrency ecosystem, including Consensys, Coinbase Ventures, Intel Capital, Pantera, and Sequoia.
Most VC companies are looking for ways to get their feet wet. While traditional investors understand that cryptocurrency can be a rollercoaster ride, they also understand the opportunity cost of ignoring cryptocurrencies and blockchain is just too high. In a blog post last November, Russ Wilcox a partner at Pillar VC summed up well: “Today’s blockchain is like the Model T: an early, crude product that marks a profound change to come.”