‘Super Careful’ Blockchain Investors Get Smart after ICO Boom
The Initial Coin Offering (ICO’s) boom is over. Research by Protos Asset Management has found that 70 percent of all ICOs are now worth less than the amount raised during the ICO. As the market downturn in cryptocurrency valuations shows no sign of abating — 50 percent of tokens have dropped by at least 90 percent since December 2017 — investors have lost their appetite for coin offerings.
“Players are super careful,” said Eva Willers, head of advisory and investments at Protos in Zurich. “Be aware you need a solid business idea. Solid token economics to be able to raise funds.”
A major US-based venture capital fund specialising in early phase blockchain companies has shifted from ICO investing to post-ICO consulting services, according to Protos. Meanwhile, a major a New York-based multi-strategy investment fund focussed on digital assets and blockchain technology is holding off on ICO investments while re-evaluating its strategy, according to Protos.
Dampening investor enthusiasm was a theme of San Francisco Blockchain Week. The flagship blockchain industry event, which took place last week, saw leading investors and entrepreneurs voicing caution about future investments. Taylor Monahan, CEO at MyCrypto wallet, said that he is more cautious about fundraising.
“It is getting harder to raise funds but I think this is a healthy development,” said Willers. “The market is maturing and people are now looking at classic criteria: Is the team good? What is the track record? What is the valuation? Does the business make sense? Will the token increase in value over time?”
About 800 people participated in the first two days of SF Blockchain Week, according to CoinDesk, a blockchain news portal, citing organisers of the event. This is less than approximately 1,000 people who joined the ETH San Francisco weekend hackathon, according to the CoinDesk report.
As public ICOs hit a one-year low with only 16 deals made in September 2018, funding of blockchain projects is increasingly being made by venture capital funds. Protos research found that $3.9 billion has been raised in venture funding this year, a 280 percent increase from the amount in 2017. Furthermore, nine out of the ten largest deals in the blockchain sector in 2018 have been equity rather than token deals. The majority of investments have been made in the US, with China, South Korea and Singapore also leading hubs.
“VCs took a long time to make their mind up about crypto,” said Willers. A sample of 50 VCs by Protos found that VCs view blockchain projects as having a genuine investment case, with the majority now having a mandate from limited partners (LPs) to invest either indirectly or via dedicated crypto funds. Protos research found that VCs on average are looking to invest in between 5 and ten deals during the next 12 months, consisting of ticket sizes of between $2 million and $5 million. “Most VCs are going for infrastructure protocols, very technical investments, industrial use cases where it is very clear where the advantages of blockchain are,” said Willers. Meanwhile, a meltdown in alt-coin prices this year has resulted in several crypto hedge funds going out of business, according to Protos.
The regulatory outlook for the cryptocurrency market was also a theme of SF Blockchain Week. “If we don’t have jurisdictions that will give our ecosystem clarity, then we’re in trouble,” said Joseph Weinberg, co-founder and CEO at Paycase Financial, a global payments network, who is advising the Organisation for Economic Cooperation and Development about how to regulate cryptocurrencies. “It’s about making sure we have a future.”
Nouriel Roubini, the New York-based economist, and professor at the NYU Stern School of Business, earlier this month testified before members of the US Congress, saying that cryptocurrencies were the “mother and father of all scams and bubbles.” The professor, famous for predicting the 2008 financial crisis, described blockchain as the most over-hyped technology in human history. “In practice, blockchain is nothing more than a glorified spreadsheet,” he said. He added that whenever blockchain has been piloted in a traditional business setting the technology has failed to deliver its stated purpose. “It is healthy that you have these critical voices and there are still huge problems to be solved in the whole market,” said Willers.
Both, the San Francisco and the Singapore blockchain week made it clear that the blockchain space is maturing, and the mechanisms of funding are changing. The deflating ICO market might seem depressing, but the return to tried and tested venture funding frameworks mitigates risk. The Moondock community does its part by mitigating risk with its smart community of blockchain entrepreneurs and enthusiasts, helping each other in building great new projects.
