The Venture Capitalist perspective on investing in blockchain

Overview:
• Venture capitalists (VCs) are highly interested in blockchain technology
due to its disruptive potential and ability to transform
various industries.
• VCs recognise the long-term potential of blockchain to revolutionise
traditional systems in finance, supply chain management, healthcare,
and other sectors.
• Blockchain has the capacity to disrupt existing business models and
create new ones, making VCs attracted to projects with novel solutions,
unique use cases, and innovative approaches.
• A panel discussion at the Unbounded Perspectives Summit in
Austin, Texas explored these ideas and featured industry experts.
• Factors considered by VCs when investing in blockchain startups include
imagination and envisioning the company's future trajectory.
• The intersection between blockchain and other emerging technologies,
such as artificial intelligence, is crucial for investors to understand.
• Bringing real-world assets on-chain, including NFTs and enterprise
use cases like energy trading, is expected to attract significant
capital in the coming years.
• Blockchain regulations and compliance are evolving, and regulators are
beginning to catch up with the sector, which is important for
long-term growth and eliminating fraudulent actors.

Venture Capitalists (VCs) have shown considerable interest in blockchain technology due to its potential for disruption and its ability to transform various industries.

Unlike most institutional investors, VCs recognise the long-term potential of blockchain technology to revolutionise traditional systems and processes across industries such as finance, supply chain management, healthcare, and more. They see blockchain as a foundational technology that can bring transparency, efficiency, and security to various sectors.

Blockchain also has the potential to disrupt existing business models and create entirely new ones. VCs are particularly attracted to projects that offer novel solutions, unique use cases, or innovative approaches to solving industry challenges using blockchain technology.

This formed part of a panel discussion at the recent Unbounded Perspectives Summit in Austin, Texas. The panel was moderated by Mike Hennessey, Managing Director at BlueBanyan and included:

Discovering the next big thing in blockchain

Kalmans explained that there are several factors she considers when deciding when to invest in a new blockchain startup. She added that angel investing is different from more traditional investing as it requires much more imagination and an idea of where a company could be heading years from now.

This was echoed by Henslee who noted that investors not only have to have a grasp of where a specific industry might be heading but how that industry might intersect with other new industries going down the line. He highlighted the growing intersectionality between blockchain and artificial intelligence as a recent example.

He pointed to the overnight success of services such as ChatGPT and the importance of making a good product first and foremost. ‘To me, it is a natural fit with blockchain and identity in particular. I put in the same prompt and I get a different response, meaning it is ephemeral – so why shouldn’t that be put on the blockchain?’

He added that this sector is likely to be driven by more consumer-focused creators as opposed to those in enterprise, as they develop new ways to work with this technology. This could be something as simple as a mobile game which catches the Zeitgeist and runs on blockchain in the background.

Bringing real-world assets on-chain

Another sector which is likely to see significant capital in the coming years is bringing real-world assets on-chain, said Moskovitz. While this is most commonly associated with NFTs and consumer-facing products, Moskovitz highlighted several important enterprise use cases such as energy trading in Europe.

‘One of our clients has essentially come up with a way of taking batteries that would have been used as trash, networking them together, buying energy from the grid during peak hours, and then selling it back at times when it would be more expensive.’

He cited another company which is putting luxury watches on chain that allows people to show off their collection and also brings liquidity to this market by allowing people to borrow against it. ‘There are huge swathes of goods which have no liquidity. If you look at the fine art world, most of the stuff sits in Swiss freehold ports that appreciate, but nobody looks at it.’

Blockchain and regulations and compliance

Despite several high-profile incidents of fraud and billions of dollars in the blockchain space, Moskovitz noted that regulators are only just now beginning to catch up with the sector and consider legislation.

He cited the spectacular failure of FTX, which is likely to lead to a significant regulatory crackdown – which likely won’t be beneficial for the overall industry. At the same time, businesses and investors must have a clear regulatory environment if they are to prosper.

He added that the uncertainty around regulation is worse than having stricter regulations in place as it is needed for the long-term growth of the sector, while it will also help weed out the genuine bad actors who are only in the blockchain sector to circumvent the law.