Blockchain Investment Moving Toward Venture Capital – Outlier Ventures Report

Blockchain, ICO News, Investing, News | November 21, 2018 By:

Venture capital firm Outlier Ventures has published the Q3 report in its State of Blockchains series, which provides an overview into blockchain investment and market trends worldwide. Predictably, the report saw venture capital taking over the money action in the space.

Three major conclusions:

  1. VC investments in the space are at an all time high as professionalization of the industry continues.

The drastic reduction in the frequency and size of token sales have created a gap that is now being filled by venture capital. VC financing is moving earlier in the funding cycle at Seed or Series A instead of the later stage, pre-ICO rounds we witnessed in Q2.

  •       VC investments have surged from a total of $900 million in 2017 to $2.85 billion so far this year, a 316% increase.
  •       VCs are active across all funding stages with 119 deals disclosed this quarter the most ever as quality projects with developed products continue to receive financing.
  •       The US is still the dominant source of VC investments in the crypto space.

Aron Van Ammers, founding partner of Outlier Ventures, said the focus for investment is shifting away from retail investors “toward VCs, hedge funds and ultimately larger institutional investors. We’re seeing a large growth in new businesses and services enabling the larger institutional investors to enter the space. Self-sovereignty means self-responsibility, and when your private keys are lost or stolen there is no broker to call. Institutional investors have a need to reduce that technical complexity and risk. New players solve that problem; from institutional-grade custody providers, to trading platforms offered by the financial incumbents.”

  1. Total ICO funds raised in the quarter fell by 74% as speculators flee

The ICO fundraising environment remains challenging as just $1 Billion was raised in Q3 by token-based projects.  Although the number and size of public token fundraises has reduced, start-ups, corporates and regulators have increasingly signalled their belief that blockchain based tokens are foundational to Web 3.0 infrastructure and represent the opportunity for new business models.

  •       Q3 ICO raises were $1 billion. That’s down from $3.8 billion in Q1, a decline of close to 74%
  •       September ICO raises in total were just $150 million
  •      The industry is maturing as token projects raise more money privately and plan for public sales when the network is more fully developed

Eden Dhaliwal, Partner and Head of crypto economics at OV saw negative sentiment around utility tokens in this quarter. “Many investors have grown frustrated over regulation and exasperated over valuations of tokenized networks. This represents a new cycle back towards equity based blockchain investments until the crypto community makes advances in validating tokens as a new asset class with viable business models. That said, projects with well designed token economies are still finding support from the community and increasingly from VCs.” 

  1. Governments around the world look to create friendly environments for blockchain start-ups.

Regulators around the world are pushing their jurisdictions to explore blockchains as a means to maintain their edge as innovation and commercial hubs. France, Singapore, Switzerland and Thailand have pushed for the creation of ecosystems that enable token issuance this past quarter. Japan’s Financial Services Agency has enabled self-regulation by the token ecosystem in the region through the setting up of a ‘Virtual Currency Exchange Association” consisting of industry leaders in the region.

  •       The UK and the crypto-asset taskforce suggested the UK had the opportunity to become a global centre for blockchain-related innovation
  •       In France, a bill exploring the possibility of providing a legal framework for the sale of tokens is in active discussion
  •       In Switzerland, a new working group by key financial policy including FINMA to explore if a sandbox or sandboxes could solve regulatory hurdles for the token economy. .