200 VCs share what they really think about blockchain

As has become an annual tradition, we surveyed a few hundred of the best VCs in the game in January to get a pulse on the most topical issues confronting our industry as we enter 2018. This year, among other topics, we sought to assess the industry’s thinking around blockchain & crypto writ large. Below are the key takeaways from that survey.

But before we dig into the results, a bit of data on the respondent pool seems appropriate. In short, the 197 investors who responded represent a fairly disparate group, across investing stage, fund size, experience, and geography, giving us confidence that the data is instructive of the industry sentiment at large.

Overall Sentiment

The prevailing sentiment among survey respondents is that blockchain technology and crypto-assets represent innovations that are likely to transform the way future technology projects are built and financed. But we’re still incredibly early in this cycle so patience and a long-term time horizon are essential.

That’s not to say that crypto-mania isn’t dominating conversations from Silicon Valley to Wall Street. But if you look at the data on where and in what volume venture investors are putting their money to work in this sector, it’s clear that most are still in the dipping their toes in the water stage, as opposed to ready to dive in head first.

It feels 2017 was the year VCs began to nibble around the edges of the category with some personal token day trading. Our bet is that 2018 is the year the industry goes all in with many more funds taking meaningful long-term positions (equity or tokens) in the most exciting emerging blockchain projects.

Long-Term Predictions

More than 80% of respondents expressed a moderate-to-high degree of optimism that blockchain technology will be have a major impact over the long-term. On the other hand, one in ten were brave enough to admit to not really understanding the technology well enough to opine.

When asked to predict the long-term relative success of Bitcoin versus Ethereum, more investors believe Ethereum will emerge as the dominant platform, although the prevailing view is that both will play important roles in the future of commerce.

More than half of survey respondents (as of early-to-mid-January when prices were still in the $15,000 range) viewed bitcoin as grossly overvalued and likely to see a massive price correction.

The sentiment around Ethereum and alt-coins is similar, with more than half viewing these assets as too unproven and/or too volatile to bet on long-term.

Investing Activity

Despite overall bullishness on the underlying technology, pragmatism abounds with half of responding firms not having made even a single blockchain investment. The vast majority of those that have invested in the space have kept it to just a few deals.

Nearly one in six firms are against participating in token offerings entirely, while nearly 80% of our peers are taking a wait-and-see approach.

Less than half of active blockchain investors have participated in a token offering, while less than a quarter have done more than one.

Fund Administration & Investment Governance

Most firms actively investing in the blockchain space have sought formal LP approval to invest directly in tokens — even though many have not yet taken advantage of such approvals.

Moreover, those with exposure to the category are adding new protective provisions to their standard funding documents to govern future token-offerings.

Conclusions

So what’s the takeaway from all this?

If the near-universal sentiment among the tech industry’s best investors is to be believed, blockchain technology is a big deal and will have a profound impact…eventually. Further, crypto assets and some form of ICO or token sale mechanism are likely here to stay, though not necessarily as the only or even dominant form of early-stage project finance.

The question we’re left to grapple with is - when is the right time to enter the market with more than an early test investment? Given the strong communal nature of this sector, there’s a real risk that those who are seen as late-adopters will miss out on the best deal flow later or will lack the context and experience to separate the likely winners from the pack.

There are other unique dynamics at play in the sector. The shift from equity to tokens introduces early liquidity, crowdfunding, and network effect dynamics that are atypical in most venture investments. Further, the massive pools of capital being raised by even modestly successful ICOs imply an unusually long runway for what are typically nascent projects and may limit the entry points for those looking to put millions of dollars to work on anything close to traditional venture terms — not to mention a possible end to the traditional venture fundraising ladder (pre-seed, Seed, Series A, Series B, etc.).

My sense, having talked to countless “traditional VCs” about crypto, is that for most it’s still unclear what stage in a project’s life cycle will offer the ideal entry point into a token position and at which “stage” of platform maturity the majority of value will be captured. Put another way, the venture community — an industry traditionally focused on high risk, high reward technology projects — remains a bit flummoxed by blockchain deals.

As I wrote recently in reflection on the 2017 crypto mania and bull market run:

When a market grows several thousand percent in a single year, it’s bound to attract a bit of attention. When this type of growth happens off of an already multi-billion dollar base, an absolute frenzy might be a better description. So it’s no surprise that the investing world lost its collective shit over Bitcoin and other crypto-assets in 2017.

It seems, at least for VCs, the excitement has been tied more to (typically personal) speculative trading of these assets than to making long-term investments in the underlying technology.

My bet is that exiting 2018, there will be far fewer crypto skeptics in venture land. Further, I believe that going forward the excitement will be less about the speculative trading opportunity and more about blockchains and decentralized platforms re-architecting the way the Internet and software operate.

The pace of change and learning is unlike anything the tech industry has seen in recent decades. There’s no doubt that there are more surprises to come in the year ahead.