Investing in Blockchain

Julianne Brands [OVF Partner from 2016 - 2020]

October 2018

Strategies for Investing in Blockchain Startups

Hosted by OVF and CBRE – Oct 9, 2018

Panelists:

·         Kate Mitselmakher, Founder & General Partner, Bloccelerate Fund

·         Nick Grossman, Partner, Union Square Ventures

·         Andrew Hoppin, Partner, ChainLink Fund & Co-founder, CoverUS

Blockchain best suited where:

·         Immutability matters

·         Either transparency or anonymity/confidentiality matters

·         Multiples entities involved, and trust is an issue

·         Millions/trillions of transactions

·         A centralized architecture fails, and peer-to-peer works better (eg, YouTube, not Comcast)

·         Disintermediation can/should occur

Examples:

·         Asset tracking, audit trail, provenance (supply chain/channel integrity, collectables, Republic of Georgia land deeds, Walmart/IBM food safety pilot)

·         Identity tracking (voting, security, authentication, Illinois personal IDs)

·         Inefficient, legacy marketplaces (healthcare, finance, insurance, natural resources, commodities)

·         Aligning participants, re-enforcing good behavior via common incentives (gaming tokens, CryptoKitties, rewards programs, token miners contributing to platform stability/security)

Investing Tips:

·         Be cautious of investing in tokens as an investment security – regulatory rules in flux; coins and tokens may be taxable; lack the rights, protections, and liquidity of equity; custodial burden of being a fiduciary and holding tokens.

·         Be cautious of investing in equity – only the tokens may be liquid.

·         Focus on business fundamentals – exceptional team? what problem are they solving that couldn’t be solved otherwise? Compelling value prop, business model, and go-to-market plan? Who pays and who benefits?

·         Bet on the problem being solved, not the technology itself. Like betting on Netflix disrupting Hollywood Video, regardless of whether by DVD or streaming. 

·         Place a lot of bets and see which flowers bloom – maximize diversification because market so nascent and frothy. A small number of winners will emerge – as occurred during Industrial Revolution and Internet Revolution. Pick sectors (5+ companies), not winners.

·         Opportunities to invest in both infrastructure and apps. 

·         Security still an issue – eg, while Bitcoin may be hard to hack, exchanges (Mt Gox) and wallets are not. 

·         Avoid private or enterprise-specific blockchains

·         Bitcoin or Ethereum could do what most tokens and coins do today.

·         Be humble and focus on learning – many ways to be wrong

Questions:

·         How to ensure data integrity and not just data accuracy (garbage-in, garbage-out, garbage persisting forever)?

·         Will decentralized blockchain-based platforms be more trusted than centralized brands and authorities?  How soon?

·         Will blockchain better position individuals to prevent unauthorized uses of their personal data?

·         Will blockchain accelerate wealth creation in developing countries?

·         How efficient is a blockchain, if each transaction is duplicated a millionfold?

·         Will Facebook’s anticipated digital tokens become the world’s global currency?