Q2 2019 Analysis and Trends
The second quarter of 2019 saw significantly more activity than Q1 in the blockchain and cryptocurrency investment space. From the information that we have gathered at Techemy Advisory, there were approximately 145 investments made in blockchain/cryptocurrency companies totaling to just under US$2B. Of the 145 investments, 28 were token sales and 117 were equity investments, demonstrating that traditional equity investments in blockchain companies are not at all threatened by token sales. Twenty of the token sales recorded by us were initial exchange offerings (IEOs), confirming our hypothesis from the Q1 report that the number of IEOs conducted will significantly increase. Compared to Q1, where we recorded only 5 IEOs, IEOs have had a four-fold increase. The highest recorded amount raised in Q2 was by Bitfinex, who raised $1B with the private sale of their exchange token UNUS SED LEO. The largest equity raise of the quarter was completed by Bithumb, who received $200M in funding from Japan’s ST Blockchain Fund.
38 of the 145 companies that we have identified have not disclosed any financial details about their deals, therefore the following graphs and comments regarding financials are based on details from the 117 companies who disclosed financial information.
As seen in Fig.1 there were slightly more token sale raises for companies building blockchains or protocols compared to equity raises. The “Other” category had the largest number of equity raises at 23, and consisted of companies in 15 industries including Media and Entertainment, Healthcare, Identity and more.
Even though a large proportion of companies that conducted raises in Q2 were spread across various industries and grouped as “Other”, they only represent 15.9% of total funds raised in Q2 which is displayed in Fig 2. This is less than companies building blockchains and protocols and companies in the Trading and Investments (T&I) sector. Even though Fig 2 and 3 have discounted the Bitfinex raise, it can be seen that the T&I sector is the leading sector in regards to investment raised as seen in Fig 2 and 3. If the Bitfinex raise was included in Fig 2, the T&I sector would represent 66.3% of the total funds raised in Q2. Both the largest token sale and largest equity raise of Q2 were from the T&I sector. As seen in Fig 3, slightly over half the capital raised for companies building blockchains and protocols was done via token sales. 17 out of 33 companies in that sector conducted token sales, and 11 of those 17 companies conducted IEOs.
A few of the major blockchain/crypto investors were identified to have made more than one investment in Q2 2019 as seen in Fig 4: Digital Currency Group, Galaxy Digital and Pantera Capital made five investments each, FinLab EOS Fund made four investments, and Consensys, Multicoin Capital, and Ripples Xpring Fund made three investments each. Other notable crypto/blockchain investors who made at least one investment in Q2 2019 are Coinbase Ventures, Boost VC, Polychain Capital, Paradigm Fund, Bitmex Ventures, NEM Ventures, Medici Ventures, FBG Capital, Placeholder Capital, BnkToTheFuture, Morgan Creek Capital, Binance Labs and Outlier Ventures.
A point to note is that a few venture funds also took part in large private token sales. For example Andreessen Horowitz's crypto fund and Polychain Capital took part in Celos private token sales, purchasing $15M and $10M Celo Gold tokens respectively. Celo is a decentralised Proof-of-Stake protocol, with a mobile-friendly, ultralight client experience allowing anyone to securely send stable-value digital assets to any phone number, anywhere. Pantera Capital, Coinbase Ventures and Fenbushi Capital invested $10M via a Simple Agreement for Future Tokens in bloXroute, a company attempting to solve the scalability bottleneck for all blockchains.
Q2 2019 also saw many traditional Venture Capital firms and institutions make investments. Samsung and Bain Capital Partners made three investments each, while SBI Holdings made two investments. Other notable institutions and individuals that made at least one investment in Q2 2019 are Kleiner Perkins, Ant Financial, MUFG, Tencent, Fidelity, DocuSign, Draper Associates, General Motors Ventures, NASDAQ Ventures, Andreessen Horowitz, Intel Capital, BNP Paribas, Barclays, Saudi Aramco, Naval Ravikant and Gary Vaynerchuck.
Techemy Advisory recorded eighteen acquisitions in Q2 2019, eight less than Q1 2019. There were some well-known names getting involved. As seen in Fig 5, there were nine acquisitions in April, three in May and six in June.
In Q2 we saw Bakkt, the long-awaited cryptocurrency platform run by Intercontinental Exchange, the parent company of the New York Stock Exchange, make their second acquisition of the year, while their first one was in Q1. This time they acquired Digital Asset Custody Company, a crypto custodian service, while in February they acquired certain assets of Rosenthal Collins Group, a futures commission merchant.
CoinMarketCap made its first acquisition by acquiring Hashtag Capital, a company building technology to provide the true price of cryptocurrencies. Coin Metrics another crypto data company acquired Bletchley Indexes, that has been rebranded to Coin Metrics Bletchley Indexes (CMBI). BnkToTheFuture also made its first acquisition by acquiring Altcoin.io, a decentralised exchange. Celsius Network, a crypto lending and borrowing platform, has acquired BSave, a digital platform that provides earned interest income on cryptocurrency. As can be seen in Fig 6, there is slightly more diversity in the sector of companies making acquisitions compared to Q1, we saw two major crypto data companies make an acquisition as well as a company in the Financial Services sector.
In Q1 we identified an emerging trend, which was a growing interest in companies in the T&I sector. This trend has continued through Q2 with T&I being the sector with the largest amount of capital raised through token sales and equity even though there were fewer deals. There was lesser activity in the M&A space as only four of the eighteen acquisitions were in the T&I sector.
As mentioned earlier, in general discounting some outliers, equity investments are far exceeding token sales volume and amount raised. In Q2 token sales raised more capital than equity only because of the $1B Bitfinex private sale. Of the twenty IEOs that were recorded, the total amount raised is $1.13B, and if the Bitfinex private sale is discluded there was $125M raised in IEOs. Binance only conducted two IEOs both raising $5M each, while Bittrex conducted four IEOs raising a total of $19M. The latest exchanges in Q2 to join the foray are Bitfinex and Ethfinex who announced their partnered creation of a new IEO trading platform, Tokinex. Tokinex conducted their first IEO in June and raised $5.1M.
Q2 saw at least one security token offering conducted per month, while many more being announced. This is a significant increase from Q1, as there was only one STO recorded. In Q2 we recorded five STOs raising a total of $132.3M, the largest sale was conducted by Proxicoin, which raised $100M. The five STOs were quite diverse in their offerings, Proxicoin is fractionalising ownership in film in media, three of the offerings were tokenised equity and one was fractionalised real estate.
Outlook for Q3 2019
In our outlook for Q2 2019, we expected an increase in IEOs being held, an increase in STOs and a steady increase in equity capital raising. All three of these expectations have come to fruition. For Q3 2019 we expect a steady stream of IEOs, not a significant increase, unlike Q2 which saw a four-fold increase in the number of IEOs held. Equity capital raising will continue at current levels with no major changes, but we forecast an increase in M&A activity. There should also be an increased number of STOs being held and announced as many of the security token exchanges are expected to go live in Q3 2019. We can continue to expect institutional participation in the investment space as we saw in Q2.
