Finding Liquidity Outside The Crypto Echo Chamber
“Fundraising”
A rite of passage for a majority of aspiring businesses out there. This is not an exception to crypto and the quest to find sufficient capital injection to fuel the crypto dream is still in the present tense.
After visiting the Crypto Finance Conference in St. Moritz, Two Prime COO Alexander S. Blum shared, “It seems many in the industry are looking for funds, including Funds! Well-known investment groups and fledgling ones all seem to be searching for new money.”
This brings us to our question of the day: How can we find liquidity to fund the next crypto unicorn?
The State of Funding — Numbers Are Down
The prospects are not as positive as we would hope for. According to Crunchbase, the latest official figures on private funding and ICO events in blockchain and crypto space saw a considerable decrease from 2018 to 2019.
In the crypto heyday of 2018, the industry saw USD 12.8 billion in total deal volume (private + ICO), whereas, by the end of August 2019, it was very evident that the industry had lost much of its momentum. Private funding — which was at USD 4.65 billion in 2018 — was only at USD 2.03 billion two-thirds of the way into 2019.
Additionally, the capital flow was further dampened in 2019 as nearly 70 crypto-focused hedge funds closed down while new crypto fund launches decreased by more than half compared to 2018.
While it was NOT the crypto doomsday scenario, 2019 was undoubtedly a slow period for capital formation in the crypto industry.
Breaking The Inherent Barriers
High volatility and uncertain ROIs plague crypto and have pushed the industry to go into a long bear market. However, markets moving from bull to bear and back are not a rare phenomenon and not the core of our concerns.
The issue is that we seem to be trapped in an insular echo chamber. An echo chamber where, instead of being self-critical on the strengths and weaknesses of blockchain, we keep patting ourselves on the back, waiting for others to recognize the value of blockchain and crypto.
We need to break away from this complacency and take a proactive stance, courting funding from those outside of the crypto space. This action starts with the first rule of securing investment: have a good plan of attack.
The Good Plan Of Attack
What does this look like for potential investors that can finance new money? Our key takeaway from the ongoing conversations with potential investors are the following:
01 Making blockchain and crypto relatable
The crypto industry must present a way for new investors to ease into the market. While our instinct is to propose a fundamental and radical change that can stem from blockchain, we need to understand their concerns and grievances before we attempt to send them to the moon. This means being mindful that these investors have limited exposure and understanding of the market or even a bad taste from past failures, and therefore have a lower tolerance for setbacks and slow times.
By proposing a de-risked and phased way of entering the market, we can motivate the investor to learn more about the industry with lowered risk, while creating room for ourselves to gradually prove the industry’s potential to them.
02 Step back, evaluate, and focus on what works
Traditional financiers like VCs are generally not in the business to buy fantasies; they want to put their money on entrepreneurs and projects with proven track records and a roadmap for capital allocation. While there is no golden rule on how to identify successful entrepreneurs in the industry, history has shown that the successful applications in crypto are the financial ones.
Specifically, crypto has succeeded 1) as a store of value; 2) in rapid fund formation, as demonstrated during the ICO boom; and 3) prevalent use of asset-backed tokens in the markets. We should not be afraid to build upon the strengths of crypto and attract institutional money with what works first, prior to sharing the blueprint for a full-blown ecosystem.
03 Professionalism and not hype
This is a no-brainer. A concrete roadmap for business continuity is essential in tapping into the new money. During the ICO boom, the capital formation was plentiful. Unfortunately, many blockchain and crypto companies were only armed with aspirations, with poor plans of execution and appalling capital allocation.
When in search of funding outside the crypto bubble, not only do businesses need to arm themselves with the unique selling points of the business, the potential of the market, and future plans, but also understand that they’re also competing against other existing and emerging technologies. All of this must be taken into consideration.
As we pass through the first quarter of 2020, now is the time to take a good look at how we approach investment. By infusing professionalism and understanding the mindset of tech investors, we can finance promising crypto businesses to push the boundaries of our industry and bring abundance to all.
Disclaimer
Readers are hereby warned that:
1) there is no guarantee or representation of value or liquidity for the FF Meta Tokens, and the purchase of the FF Meta Tokens is of speculative nature and none of Two Prime or its affiliates shall be responsible for or liable for the value of the FF Meta Tokens, the transferability and/or liquidity of the FF Meta Tokens and/or the availability of any market for the FF Meta Tokens through third parties or otherwise;
2) Two Prime intends the value of the FF Meta Tokens be maintained but the FF Meta Tokens may still be subject to fluctuation;
3) under no circumstances would a holder of the FF Meta Tokens be entitled to or receive (i) any form of interests whatsoever in whole or in part (including but not limited to equity interest, proprietary interest and ownership interest) or share in or claim against Two Prime and/or any fund managed by the group, (ii) any voting rights at the board meetings or shareholders meetings of Two Prime, (iii) any management rights of Two Prime and/or the FF Meta Tokens, (iv) any economic right (including any kind of right to payment, distribution, income, dividend, profit, or other return, or any sums to be paid, or likely to be paid, out of such return or profit) of or generated from the keeping of the treasury (except those directly between participants of the ecosystem), by Two Prime and/or from the project financing conducted by the group; (v) any interest payments from Two Prime and/or any funds managed by the group; and (vi) any claim against any funds managed by the group and request any value to be returned to you;
4) the FF Meta Token is not a debenture issued by Two Prime and all purchase of FF Meta Tokens are final upon you receiving the FF Meta Tokens from Two Prime. You will not have any right to subsequently request redemption or return of the purchase funds you paid to Two Prime for the purchase of the FF Meta Tokens which Two Prime has the sole and absolute discretion to decide on how to use the purchase funds; and
5) Two Prime does not give any undertaking that, if the FF Meta Tokens are used as a means of making payment for goods or services from Two Prime or from a recipient, Two Prime will, or will procure the recipient of the FF Meta Tokens to, accept the payment up to the amount of the value in any funds managed by the group or to redeem the FF Meta Tokens.
