26 Mar VCs voting for blockchain with record funding
While ICOs are hitting turbulence, venture capital seems to be voting for blockchain with a three-month record of $434 million raised in Dec 2017 through Feb 2018 according to Coindesk data.
Bloomberg reports the VC support indicates the market sees a positive future for bitcoin and blockchain companies, despite the looming threat of increased regulations in the US and around the world.
VCs backing blockchain
Blockchain VC fund SparkLabs Group raised $100 million and launched late last year and has already invested in six companies, according to Partner Frank Meehan who said, “If a company goes on and gets an ICO, my equity is worth more. That’s really the game right now.”
Failure part of the game
ICO startups raised more than $3 billion in the first two months of the year, more than half of the entire amount raised in 2017. Of those 2017 startups, 46% have already failed or couldn’t complete their fundraising according to TokenData.
TokenData shows another 50 of 340 2018 ICOs have already failed. That should scare off most mom and pop investors who don’t have the experience of VCs to assess the risk of cryptocurrency and blockchain companies and their tokens.
Some VCs are taking a cautious approach
Not all VCs are jumping in with both feet.
“It’s a good time to be cautious. You’re not missing any boats,” said Lonne Jaffe, managing director at Insight Venture Partners, with $18 billion in raised capital for more than 100 companies, including Twitter Inc. “We’ll invest once the companies are hitting on all cylinders and are starting to scale up.”
The SEC seems ready to label all tokens as securities, a regulatory environment VCs are familiar with. A Security Token Association, launched March 8 in DC, will advocate on behalf of tokens classified as securities.
Writing on Medium, STA Founder Pulver said:
“As an organization we will be sharing our international members suggested best practices in several areas including: Security Token Advisors, Security Token Exchanges, “Service Providers” within the Security Token Industry, Suggested approaches for: GAAP and Tax Accounting for Security Tokens, Suggested Reporting Requirements for Pre and Post ICO Token Issuers. Our intention is to establish a dialog with global regulators and contribute to the collective conversation.”
Tokens as a service
Seeing an opportunity, Securitize launched in January 2018 as a service to provide funds, companies and other entities with a way to tokenize any assets with security tokens.
According to its website, “Securitize enables the issuer to manage the processing of the securing investors, from login to capital received, as well as enabling the issuer to distribute and manage the security tokens throughout the lifetime of the asset.”
Securitize co-founder Jamie Finn said more than 100 companies have signed up with plans to raise billions of dollars of capital. Instead of traditional IPOs, Finn said, “These models that bring dividends and real payments are very attractive. We are starting to see big companies, big brands go to market in very interesting ways.”
Finn believes tokens with equity can be traded more easily and are simpler to buy online instead of going through traditional funds.
Security tokens should grow in popularity
Polymath is another platform for token issuers. CEO Trevor Koverko said security tokens only make up $100 million or just 0.025% of the $400 billion cryptocurrency marketplace, which leaves much room for growth.
Joe Forbes is CEO, at Causam eXchange, which started selling security tokens worth 25% of the company on March 8. His company has a product, customers and profits after five years of operating and security tokens were an ideal way to raise capital and provide private investments with liquidity.
For every uncertainty, markets and innovators tend to figure out unique ways to respond and create new products or services to handle uncertainty like regulations.
It will be interesting to see how the security tokens market grows and responds in this quick-changing environment. One thing’s for sure, you can never have enough security.
You can read more about security tokens at Bloomberg News.