Token Curated Venture Capital, vol. 1
Article 1: A Paradigm Shift in Venture Capital
(co-authored with Richard Malone - Innovating Capital and Armen Rostamian -Grüv, LegatumX. As well, big thanks to Bill Draper and Tim Draper for taking time and reviewing parts of the article talking about them)
We at Pale Blue Dot (pbdot.org) believe we have devised an interesting Venture Capital (VC) fundraising and investing paradigm. With the continuous advent of blockchain technology, we are cultivating a decentralized investment ecosystem that delegates decision-making power to all stakeholders in the ecosystem, leveraging the wisdom of the crowd.
Before we discuss the nuances of the new VC model, we think the community, at large, will benefit from understanding the genesis of Venture Capital, its current needs, and where we believe the industry is going in the future.
So please enjoy this series of articles examining our ideas to disrupt venture capital with application of blockchain for the benefit of the entire early-stage investment community. Although articles are going to get more technical as we dive deep into details, we will stick to casual language as much as possible.
The history of Venture Capital as a purpose-driven investment model
Venture capital has solidified itself as the first and only truly purpose-driven investing methodology turning into self-sufficient and sustainable industry over time. When entrepreneurs take those critical first steps towards building a revolutionary product, VC is the only investing practice which supports these early-stage innovators. All of the titan companies of the internet age, such as Google, Apple, and Facebook have received VC funding for critical early stage growth. However, the first days of venture capital were fraught with fragility and uncertainty…
The term “Venture Capital” was coined in 1943 by Joseph Schumpeter to describe a special type of capital needed to serve as igniting force of Creative Destruction. The original idea behind venture capital was simple: even if less than 1% of many high net-worth individual’s total assets were to be invested into civic innovation, we would witness an era of unparalleled innovation and unprecedented investment return. As a result, the first venture capital firm, American Research and Development Corporation (ARDC), was incepted three years later by US Army general and Harvard professor Georges Doriot. ARDC’s investment of $70K in DEC (Digital Equipment Corporation) resulted in $38M return in 11 years.
Fast forward to 1959. Another US Army General, William Henry Draper Jr., started Draper, Gaither and Anderson, the first venture capital company on the West Coast. His son, Bill Draper, worked there as an associate for a few years and then later founded his own venture capital company, Sutter Hill Ventures. According to Bill Draper:
“There were no startups at that time, and pitching, as we know it today, did not exist. I used to lease a car and drive through the streets of what is now known as Silicon Valley, and I’d look for orchard barns with signs that had something related to technology in their name. I would walk in the lobby and say to the receptionist, “Hi, I’m Bill Draper, and I’d like to speak with your CEO. What’s his name, by the way?” That’s how it worked in the early days. When I said I was looking for companies that needed venture capital, they asked what venture capital meant.”
Essence of Venture Capital
While at Draper, Gaither and Anderson, Bill was presented with a great opportunity to invest in the first luxury condominium in Hawaii. However, he was dressed down by a Rockefeller limited partner for suggesting the firm should invest in real estate, despite the fact that it was a good deal. He was asked to stay away from Hawaii and focus on making investments in innovative and technology-driven companies in California. As a result, Mr. Draper returned to scouting and investing in entrepreneurs and technology companies in his neighborhood.
And thus Silicon Valley was born.
After considerable success, he started receiving interest from big Wall Street players. Mr. Draper was doing work in his small office one evening when the CEO of Goldman Sachs came for a visit and proceeded to ask Bill about the remarkable returns achieved by the firm. To say the least, he was intrigued and wanted to learn more about this new type of investing. Soon afterward, Wall Street supplied most of the money necessary to make Silicon Valley the world-renowned epicenter for innovation and entrepreneurship that it is today.
It is these two stories that catalyzed the advent of Venture Capital as the efficacious industry it is today.
Exciting times. Now
Indeed, exciting times are upon us. The inceptions of crowdfunding and blockchain have made it possible for thousands, if not millions, of people to participate in venture investing. Finance in its current form is on the precipice of radical disruption. Someone inextricably linked to VC is Tim Draper (DFJ, Draper Associates, and Draper University), early investor in Hotmail, Skype, and Tesla, who also happens to be the son of Bill Draper. By all measures, Tim has achieved unrivaled success as a Venture Capitalist. He is one of the most prominent advocates for blockchain technology, owning a stockpile of over 30,000 Bitcoins. In Blockchain, Tim sees the fundamental building blocks of a new economy based on innovation, transparency, decentralization, and shared ownership.
In our opinion, those are the guiding principles needed for a successful upgrade of our current financial systems. The transformation of finance will inevitably lead to unprecedented change in how governments operate as well.
The fact that the cryptocurrency market has achieved a total market capitalization of over $230 billion (over half a trillion at its height) is another expression of purpose-driven investing, yet still immature and non-structured. People have manifested their dissatisfaction with the current financial system by investing in technology and currencies out of the control of entities like banks and governments. Now, there is at least over $230 billion to support heightened transparency, accountability and innovation in our financial and governance constructs. Champions and innovators will lead the movement; opponents and ignoramuses will continue to see their positions weakened.
Nota bene, that the current transformation has not been triggered and financed by traditional financial institutions, but mainly by the ambitious people dissatisfied with the old paradigm.
New paradigm
Blockchain technology enables the conceptualization of new venture investing paradigms. As such, we can adequately leverage this profound tech to evolve the entire industry of early stage investing. Our new model is built upon the following principles:
- Long-term thinking and value creation;
- Decentralized decision making;
- Easy access to venture financing for everyone;
- Acceleration of the blockchain ecosystem growth;
- Active participation of stakeholders;
- Rewarding of good decisions;
- Alignment of human, community and individual interests of stakeholders.
With these principles in mind, here is a brief description of our vision:
TCVC is a token curated venture capital and crowdfunding platform which enables multiple classes of network participants to leverage a quasi two-token system to partake in the portfolio inclusion and investment allocation process.
So, what exactly does this entail?
In the next article, we will introduce a high-level description of our Token Curated Venture Capital model with detailed diagrams and a brief description of our founding principles. All proceeding articles will provide analysis of the model’s challenges and validated strengths, with a technological review of its feasibility. Please feel free to reach out to us for suggestions, criticism, and words of support.
Pale Blue Dot (PBD) is an initiative inspired by philosophy of Carl Sagan. It is devoted to supporting the development of new “operating systems” for the world’s broken financial and governmental complexes.
