Robert Hackett of CB Insights is always keeping his finger on the pulse of fintech and in particular, the advent of cryptocurrency ICOs advanced by blockchain startups and the fintech funders putting wind in the sale of these innovative initiatives. Despite skepticism surrounding so-called Initial Coin Offerings (also referred to as Initial Token Offerings) and the supposed secrecy shrouding deals within the blockchain startup world, Hackett has assembled investor data that debunks the notion top gun VCs are only stepping lightly into the space. According to Hackett in a report published by Fortune, VC firms are opening their wallets and investing in crypto hedge funds, ICOs, and tokens directly. To that point, VC firms are on track to book 77 traditional deals with blockchain startups by the end of 2017 — more than any year prior. So far, 59 deals have been “coined” this year, already exceeding the 57 signed last year.
Who are the check writers? Active dealmakers include Sequoia Capital, Union Square Ventures, and Andreessen Horowitz. In the merchant bank space, NYC-based SenaHill Partners has been dabbling in this sector for several years, evidenced by its backing of Symbiont.io, which has coined its software “Smart Security.” According to CB Insights, Andreessen apparently likes to invest alongside Union Square Ventures, as seen in joint fundings in Coinbase (a crypto broker) and Polychain Capital (a crypto hedge fund). Meanwhile, Sequoia places bets more sparingly, backing only Bitmain Technologies, a Bitcoin miner, and Koinify, a since-shuttered crowdfunding platform. — ICOs show no signs of slowing. ICOs have raised more than $2 billion in funding to date, with many ICOs still ongoing and hundreds more scheduled. In other words, companies have raised more money through ICOs than through traditional equity financing. Over-capitalization becomes a concern here with startups receiving too much money too quickly. When compared to traditional equity financing in the sector, ICOs raise well above the historical average of $3 million for early-stage blockchain deals. Just today, news broke that Bain Capital Ventures and Andreessen Horowitz have participated in the pre-sale of a new cryptocurrency called basecoin.
Several trends become clear as you peruse the ties. Andreessen Horowitz likes to invest alongside Union Square Ventures, as seen in joint fundings in Coinbase, the most well-known crypto broker; Polychain Capital, a top crypto hedge fund; and others. Sequoia, meanwhile, places bets more sparingly, backing only Bitmain Technologies, a Bitcoin miner, and Koinify, a since-shuttered crowdfunding platform.
Note that the biggest-name investors included above are not necessarily the biggest investors in blockchain tech. Digital Currency Group, an investment firm led by Barry Silbert, founder of SecondMarket (an exchange for private company stock) and alumni of Fortune’s 40 Under 40 list, leads the pack with more than 100 investments in roughly 75 blockchain companies. Blockchain Capital lands in the runner-up spot, with Draper Associates placing third in terms of number of deals.
As previously noted by Prospectus.com, a big oversight on the part of many ICO Issuers is a need to comply with securities regulatory regimes when advancing a private placement investor offering. So-called “white papers’ in lieu of traditional business plans might work for investors, but the actual offering terms/conditions should, according to securities attorneys who are carving out expertise in this type of capital raise, need to conform with accredited investor narrative and confirmation processes.
To view the Fortune article by Robert Hackett, click here