THERE IS NO CAPITAL SHORTFALL

Published in

The Reserve

6 min readSep 24, 2018

The Reserve 07.09

As the market continues its descent through $200 billion, raising capital via tokens is now an entirely different game. But excellent projects are still raising — regardless of market conditions. Why?

As retail investment retreats (the dream of democratised access via ICOs is, for all practical purposes, already over), and new-founded crypto funds question their investment theses (wait — an investment instrument with no rights to vote, to profit — to anything — doesn’t have value!?), the tokens on sale are increasingly being issued with rights and rules (as they tend towards securities), which allow traditional venture firms to invest under their LP Agreements, reducing the capital shortfall.
As this trend happens, traditional markets (like fintech hotbed London) become increasingly important — particularly now valuations have died.

As news leaks on BlackRock advising Coinbase on an ETF — I tell you now, what we need for capital to enter the space is not ETFs — but for the instruments on offer to mature. The majority of the assets seeking finance in this space are venture assets. Capital therefore needs two vehicles for this — for LPs, it needs great GPs with experience/track records. A track record is hard to find in this space — but we know some if you’re looking!

For GPs, we need instruments they can actually invest in — instruments that are securities, and that have investor protection. As soon as we’ve tokenised equity, and regulated the exchanges… then capital will start entering the market and funding the important innovation occurring. An ETF just perhaps pushes BTC higher.

Final point — we’re in this silly grey ground now where the security tokens being issued are just massively inferior forms of equity. Any serious investor will demand equity. I don’t expect the current wave of asset-backed/revenue-share tokens to last long. They’re inappropriate for the venture investor in all but exceptional situations.

For some more of my thoughts on this, I had a short interview with Bitcoin Magazine whilst at WBF this week. Have a good week!

// A PROJECT’S GUIDE TO EUROPE

There is no doubt that raising capital now is an entirely different game to what it was 12 or even 6 months ago. However, excellent projects are still raising capital in Europe regardless of market conditions. As retail investment retreats and new-money crypto funds question their investment theses, we see a shift in the market. The token instruments on sale are increasingly being issued with rights and rules (as they tend towards securities), which allows traditional venture firms to enter the market. What this means is that there is no shortfall in capital.
As this trend happens, markets like Europe — and particularly London — are becoming increasingly important in any fundraising strategy. Whilst there is certain depth in the ‘crypto investors’ — and again, especially in London — there are increasingly much larger, already established VC networks that have a particular interest in fintech products.

If you actually analyse it — London predominantly funds fintech right now, having 2 unicorns in the space from this year — Revolut and Monzo, Transferwise from last year and Funding Circle due to IPO for between an estimated GBP 1.7–2 billion according to Bloomberg. So there is potentially a sweet spot in London and Europe for projects seeking investment. But only if the instrument on offer is palatable. And by palatable, I mean suitable for more traditional investors.

// MUST READS

Vitalik on innovation trade-offs at the Layer 1 and Layer 2 levels.
Nic Carter addresses the questionable relationships between exchanges, ICO creators and coin ranking sites.
Bloomberg clarifies the situation regarding layoffs at Kraken’s San Francisco branch.

// DISASTER OF THE WEEK

Coin Telegraph — MEGA Chrome Extension Compromised to Steal Users’ Monero.

// TRACTION

There are 28 courses at Cornell — an Ivy League University — related to blockchain.
Digital payments firm Square has won a patent for a payment network that allows merchants to accept payments in any currency, including bitcoin and other cryptocurrencies.
A survey by Coindesk shows that nearly 80% of Americans have heard of Bitcoin.
UK’s first blockchain-enabled co-working space, Primalbase is to launch in London.
ConsenSys partners with Coursera to launch an online blockchain course.
Uzbekistan creates a state blockchain development fund.
Facebook is looking for a “head of business development & partnerships” for blockchain at its Silicon Valley headquarters.
The Korea Post’s President, is to study crypto in detail with Goldman Sachs’ team at the end of this month.
Lenovo is working on a New Vision Technology project, that will utilise blockchain to help facilitate building software.

// ROAD TO REGULATION

It has been reported that the world’s largest asset manager, Blackrock, is advising Coinbase, one of the most well-known digital currency exchanges, to create a cryptocurrency focused ETF. Whether an ETF is the panacea for this space remains to be seen. We at The Reserve, tend to agree with Vitalik’s view that “there’s too much emphasis on BTC/ETH/whatever ETFs, and not enough emphasis on making it easier for people to buy $5 to $100 in cryptocurrency via cards at corner stores.”
Shapeshift, the p2p cryptocurrency exchange, is launching a membership programme, which “requires basic personal information to be collected” and will “become mandatory soon”. This is not surprising given the exchange’s efforts to future-proof itself and become regulated. For some people, however, any attempts to implement KYC/AML checks are a step too far. We believe in the power of DLT to make a truly positive impact on the future of governance, economics, politics and money — resistance, while not futile, must be for a purpose. Compromise is necessary if you want DLT to become more than just a fascinating ideal for speculators, techno-geeks and anarchists. Everything involves a trade-off, so question yourself, what do you want to optimise for and what are you willing to compromise on?
Goldman Sachs, may or may not, be ending its plans to set up a crypto trading desk. It pains me even having to write this as it just shouldn’t matter…

// PROJECTS

Spacemesh a project working to develop a “blockmesh operating system” has raised $15 million in a Series A funding round. The round was lead by Polychain featuring a number of prominent firms including MetaStable, Coinbase Ventures, Arrington XRP Capital, Danhua Capital and a number of other funds. Funds raised will be used to grow the development team and to pay for an open-source bounty programme.
Citizens Reserve a project positioning itself as “an industry agnostic supply chain solution” is launching a new supply chain platform. The platform aims to improve how shipments are coordinated and tracked around the world, utilising both ethereum and quorum blockchains. The platform will serve to provide “supply chain-as-a-service” designed to offer privacy to its users. Debitum launched their network, one of a handful of projects to successfully deliver on their ICO promises and begin offering an alternative financing ecosystem focused currently on SME lending.

// A CALL TO ARMS FOR ALL FUND MANAGERS

A friend of ours is developing a product aimed at making your life free of administrative tasks through automation, and, eventually, to upgrade fund formation for the digital era. If you have a few minutes, answering these questions would help her out a great deal and would be much appreciated