Will Bitcoin Change the Entire Concept of Venture Capital?
There is no doubt that Bitcoin has stirred up the global economy. Ten years ago, nobody would’ve thought that the value of bitcoin will jump so high and cause such a craze. In January, famous American rapper, businessman, and entrepreneur, Curtis “50 Cent” Jackson, said to have accidentally made $8 million in Bitcoin. He let people buy his album “Animal Ambition” using bitcoin and then forgot about it.
At first, venture capital firms didn’t buy bitcoins but invested in companies that wanted to improve the bitcoin mining process. When the value of a bitcoin reached $19,000, venture capitalists realized that they would have a much better ROI if they had invested directly in bitcoin. This occurrence went against the basic concept of venture capital.
The Rise of the Bitcoin Entrepreneur
Instead of raising capital to launch a business, today’s entrepreneurs, investors, and startup founders are trying to adjust their investment and fundraising strategies. They raise funding by creating and selling their cryptocurrencies instead of equity (the traditional method). This new fundraising model is called the Initial Coin Offering (ICO) and if it becomes a sure way for entrepreneurs to get a piece of the latest technology, where do venture capitalists fit in? The service VCs offer is access to new private companies who haven’t publicly traded their shares.
ICO trend exploded in June 2017, with it early adopters managing to raise tens of millions without having a developed business plan. However, the rate of successfully funded ICOs went on a decline over the last six months, as investors get smarter, now wanting to fund speculative projects anymore.
Venture Capitalists’ New Methods
To cash in on the bitcoin craze, VCs have started buying the rights to acquire tokens of a company ahead of an ICO instead of taking an ownership stake. They are using new legal agreements through which they guarantee to investors that they can get tokens if the company decides to hold an ICO.
Many investors (especially in the tech industry) are taking the straightforward way to bet on bitcoin – they buy them. The founder of Social Capital (venture firm) and former Facebook Inc executive, Chamath Palihapitiya, began buying bitcoin in 2012 and said to have held 5% of bitcoins in circulation. Today, his stake is smaller but still sizable. He went on to claim that bitcoin will reach $1 million value in the next 20 years.
How is the Trend Anticipated to Evolve?
The managing partner of a blockchain investment platform Kenetic Capital, Jehan Chu, predicts that we will see ICOs get broken up into several stages with milestone deliverables and equity raises work their way back into funding options for the later stages.
The CEO of BnkToTheFuture.com, Simon Dixon, says that large businesses will begin to tokenize their communities and ecosystems, which is already happening with some publicly listed companies.
Instead of investing in the companies that create tokens, VCs are buying them. To do this, they use SAFT – Simple Agreements for Future Tokens – a novelty legal contract that allows them to acquire digital tokens.
Keep Track of Bitcoin Trends
With so many innovations and fast evolution of the cryptocurrency ecosystem that affect and change the economy as we know it, entrepreneurs and knowledgeable businesspeople need to follow up. Blackhawk Partners has cryptocurrency specialists who can predict and keep up with the blockchain trends and help you invest in and trade with the most lucrative cryptocurrencies.
Now you know…