VC meets Blockchain. What will he do with it?

Here are my doubts and speculations developed while I’d witnessed a number of blockchain start-ups pitching to VC investors. Very sketchy, but I’ve to share it now and throw out of my head for some time.

When ICO mania of 2017 came to its end, venture capitalists found themselves in much need again. With general public slightly discouraged by an abnormal quantity of scam projects and governments building up more effective attempts to protect public (and their own) interests — VCs became again a much-desired source of capital for all blockchain entrepreneurs who for one reason or another had missed bonanza times.

Today we more often read that “our project raised enough capital from professional investors to postpone (or completely abolish) public token distribution”, then the news on successful ICOs.

If we assume that these are classical VC investors from pre-2017 trying to catch up with blockchain — one interesting question arises. What type of exit are they planning?

Historically we had two ways to make money from a start-up. It is to sell it to the strategic investor or to the general public in IPO, and get several hard-earned “Xs” of a venture deal.

Let’s notice that so far it is very hard to imagine deals of these two types for a successful blockchain project.

Obviously here I mean a “real” blockchain project, not a traditional centralized corporate venture with a new type of database under the hood. Successful blockchain should be large-scale, decentralized, open-source and trust-less. By the way, such structure becomes technically easily forkable, only economic incentives holding it together and preventing actual forks.

So what does it mean to own a blockchain project and what can it mean to exit it?

Traditional ownership does not work well here. Successful (my definition) blockchain project creates value for the broadest possible community without the need to “own” the project. It is almost a direct corollary from the definition above. Shareholders of an incorporated legal entity developing the blockchain project can get some cash-flow when it becomes operational. But any strategic sale of this position looks highly improbable. Only public sale remains — if said cash-flow validates high valuation required by a VC.

Another possible answer is — forget the ownership. Get the coins (tokens) cheap, sell them high. The same 2-year old ICO idea, but for select few investors. Will it work this way? Who can be the buyers to give our VC the required rate of growth? It is hard to imagine some strategic investor willing to get long in the tokens of the network with utility already available at some market price. Which leaves our VC again with the general public, or, saying it another way, with the developed market for blockchain’s utility, where he can easily unload his package at market rate minding liquidity constraints. Not a bright perspective, I would say.

It can well be that everything above is just my prejudices and I had not yet met a project with a convincing story which brings together an old VC business model and a new bright decentralized world!