We got even more great insights from our recent Investor Panel & Start-up Pitch series on blockchain, crypo-currencies, initial coin offerings (ICOs) and the FinTech sector.
Panelist Mary Liu (far right) is a VC at BDMI / Bertelsmann Digital Media Investments – part of mega international media, music, services and education conglomerate Bertelsmann. BDMI was established in 2006 and has over $180 million under management, making investments in innovative companies in the digital media sector. This is a growing trend among large companies to make venture investments in promising emerging tech-sector start-ups.
Mary observed that “Uprooting all aspects of a value chain require major changes, and that blockchain is hard to use.” But BDMI is actively investing in companies in these sectors. She continued “We’re seeing companies that can’t otherwise raise money successfully doing it here using ICOs.”
Mary mused about the issue of “Where does the real value lie in these sectors? The blockchain protocols need lots of work.” This is not surprising, because interest in bitcoin and blockchain technology has increased so dramatically over the past year, and the technology is revolutionizing so many industries, especially banking and finance.
She cited Tezos as a star-up that is having governance issues with its own currency. There is a feud among core blockchain developers over how to best resolve longstanding issues, not least of which is how to increase block size. As Tech Crunch recently reported “Under the current 1MB block capacity, congestion of the network has put bitcoin under strain, resulting in higher transactions times and processing fees.” Tezos is working hard to overcome these problems.
Morgan Polotan is a principal at Gencast Ventures in NYC. The firms describes itself as “Founders and operators with a passion for technology, investing in seed-stage technology start-up.” They go on to say “Our DNA as technology founders and operators gives us unique insight into the challenges faced by new companies.”
Morgan said Gencast is studying the enterprise blockchain space, including what IBM, Microsoft and Everledger are doing. “We see the need for low-level development work on improving protocols, ones that do a better job of capturing value – like Tezos.”
“These start-ups need to be smart about identifying the real pain pains, as Bitcoin did improving access to stored value, where they battled governments that were holding currency.” He went on “It’s like buying a house – lots of paperwork with no common / viewable / trusted public ledger being available. It makes the whole process more expensive and time-consuming. We’re looking for these types of use-cases.”
In terms of the role of VCs in this sector Morgan noted “Some VCs act only as gate keepers to capital – they don’t add any real value. There will be an increasing demand for VCs top act as partners that will help build businesses.”
On the value-creation issue, Morgan observed “The future of value creation will come from advancements in protocols vs. applications. And the valuation model for tokens needs to be established.”
Genesh Kumar works as a Director in the Strategic Planning Group (SPG) at American Express. His team develops high-impact solutions, competitive intelligence and critical strategic initiatives for the CEO and other C-level thought leaders.
Genesh cited Abra as an interesting start-up, working in digital cash and consumer peer-to-peer mobile payments. The platform allows mobile to mobile money transfers, using any currency to send and receive money worldwide, and can even buy bitcoin. This includes the fight for the $400 billion business of immigrants sending money home as a new class of start-ups use bitcoin and blockchain to drastically lower fees and grab market share in the process from the likes of Western Union.
Genesh provided several simple evaluative criteria to use when looking at a company in this space;
- Does the business model make sense outside the blockchain?
- Does the business solve a real pain point?
- Be sure that blockchain technology is tied to the business model.
Wendy has been looking at “lots of business models that decentralize.” She noted “We’re seeing blockchain experimenting with both behavior and government processes – with plenty of opportunities for testing early use-cases.”
She also observed “Governments cannot stop the momentum of blockchain – the SEC is thinking hard about it for sure.” Fortune reported this past summer “The SEC shook up the red-hot market for so-called Initial Coin Offerings (ICO) last summer by ruling that some of these ‘coins’ are actually securities – and are subject to the agency’s regulation.”
Wendy went on “The space is very young. We don’t believe that every token will deliver value. How it will be done needs to be explained in white papers. Traditional evaluation standards don’t apply. But there are lots of interesting projects going on.” And finally “Anything that builds infrastructure is good.”
Whether you think this whole area is a fad, a scam or the next big thing, the numbers speak for themselves: According to CoinMarketCap the total crypto-currency market cap now stands at $152.2 billion. ICOs have raised over $575 million this year along according to a recent report in Forbes.
So it seems that it may be time well spent learning the basics of this fast growing part of the global emerging tech market. You can start by bookmarking ICO Stats – a website dedicated to tracking ICOs.