Leading Flowdesk’s $50M Series B
Crypto winter you said? Yes, it has indeed been pretty freezing cold over the last year. So, when you see a little fire burning from afar, you just want to get closer and closer, to get warmer and warmer. That little fire, growing bigger and bigger, we saw it in Flowdesk.
Flowdesk was founded in March 2020 and within 3 years the traction has been going through the roof. This is even more admirable that market conditions have been challenging. The company grew their revenue 3.8x year-on-year in the midst of a bear market, has opened offices in Singapore and New York, and has proven a remarkable execution strategy and management capabilities.
VC investment is like marriage, they say. The analogy is nothing new, in fact it tends to get slightly redundant, but one must admit that it is on point. We have had the opportunity to closely follow Flowdesk’s developments after a first exploratory ticket from the Ledger Cathay Fund in Flowdesk’s Series A back in March 2022. So, when 18 months later Flowdesk started contemplating their Series B, we decided to lead the round.
So what is the ignation point of that fire & why do we think it will only get bigger?
1. Guilhem & The Team
A VC investment, in the early years of the company, is and will always be primarily a conviction on the team. We have been extremely impressed by the various interactions we have had with Guilhem, David, Paul and the team for over a year now. The team has a strong set of expertise across the crypto industry and financial markets and demonstrated exceptional execution capabilities in a very complicated market environment. New experienced hires will further reinforce the growth efforts of the company whilst staying on top of key strategic priorities such as remaining compliant by design across the regions where Flowdesk operates.
2. An innovative market-making model where incentives are aligned, transparency is at the core of the trading proposition, and revenue is recurring
Flowdesk provides market-making infrastructure and trading capabilities for spot and derivative crypto markets. With their SaaS model, Flowdesk has developed a strong resilience in bear market conditions, which puts them in a leading position for when the bull market will kick in.
This model corrects market practices that were previously implying significant conflicts of interests.
In the traditional model, market makers provide token issuers with the liquidity and takes a percentage of the token issuance in return, usually around 5–10%. The liquidity is provided in the form of a loan and the market maker has a call option on the percentage of the token supply that they secured, which which will expire a couple of years later. It means that those tokens are almost granted for free to the market makers. When they decide to exercise their call option, they sell all of their tokens at once and it creates a misalignment of incentives between the token issuer and the market maker, especially given the high factor of volatility. The conflicts of interests are further enhanced by the fact that traditional market-makers do a lot of proprietary trading with tokens they are also working with.
In Flowdesk’s model, token issuers don’t have to give up any of their token supply. Instead, they are the ones to provide the liquidity for their token to be traded on various exchanges, and they cover the risks. The funds are placed in custody with Flowdesk who is then in charge of trading them with their dedicated team of traders. Flowdesk executes trades on the various exchanges that they integrate with — they’ve built an extensive coverage over decentralized and centralized exchanging such as Uniswap, Binance and KuCoin. The trading strategy is previously defined with the token issuer and they keep visibility on the P&L strategy which can be adjusted as needed. “Your collateral, your strategy, your P&L”. For that, Flowdesk has developed a SaaS solution which ensures recurring revenue.
3. A long-term trend towards the tokenisation of everything, where a fair market-maker will have a crucial role to play
We believe in the tokenization of everything, meaning that we think there will be a digital asset for any asset that exists in the physical world. This tokenization process is becoming more and more mature when it comes to financial assets, across traditional and alternative assets. We are seeing traditional finance institutions like JP Morgan enter the space.
One of the core differentiators of Flowdesk is that they focus on the long tail, which represents 99% of the tokens in the market, whilst traditional market-makers focus on the top 1%. By supporting these projects in their early days, Flowdesk is able to secure them at the beginning of their lifecycle and continue to grow with them as they develop further.
Flowdesk has also gone up the token ladder and managed to attract well established Tier 1 tokens that were previously using dominant and traditional market markers. Thanks to an impressive upselling strategy, Flowdesk has demonstrated that they can cover the whole lifecycle of the token journey and thereby capture an immense majority of the market.
Flowdesk’s traction and upselling strategy have acted as early proof points of their ability to seize the massive market opportunity that is underway.
As blockchain technology gets more mature and the tokenization of everything progresses, Flowdesk can capture early projects, help them grow bigger and remain their market-maker companion throughout the years. We are convinced that the potential is gigantic.
PS — We wrote this post prior to the recent news on the approval of 11 ETF Bitcoin Spots in the US, which makes the market potential for Flowdesk even more gigantic. More on that very soon, stay tuned…
Jacky Abitbol & Marguerite de Tavernost