07_Venture Capital Flashcards
Signature Ventures
Investment Pillars
capturing full potential of blockchain innovation
1. Blockchain Infrastructure: enables scalable defi protocols & platforms
2. Open Finance: enables blockchain-native application for everyday life
3. Early Applications: Drive demand for more efficient infrastructure
- identify the right projects at the right time
- feedback loops
- three most promising areas
Venture Capital enagement
- early stage (VC)
- Expansion stage (Growth CV)
VC only accounts for small share of private market, which itself is only small subset of overall capital market
Todays internet has led to
- manipulation: Cambridge analytica
- surveillance: project pegasus spyware
- dependency: social media platforms
Fundamental Infrastructure of Today’s internet
1. Increasing Cost of Compliance: privacy concerns & lack of transparence accelerate governmental regulation
2. Strengthening Monopolies: growing entry barriers lead to slowdown in innovation and stifle competition
3. Centralization & Loss of Transparency: lack of alternatives result in more data disappearing in black boxes of few
4. Lack of Privacy: data analytics, data breaches and hacks cause total loss of digital identity
Web 3 promises to
- be privacy-centered and sovereign by moving from App-Centric (500 apps = 124,650 integrations) to Data-Centric (500 apps = 500 integrations)
- transparent and secure by moving from siloed companies to transparent open networks
Web 3 can enable
3 items
**1. Internet-native finance
2. Self-sovereign Identity
3. open communities: **social media through internet protocols that are owned and governed by users themselves, rather than individual companies
Crypto Start up Lifecyle and Investment
4 stages
1. Lab Research
[concept generation, analytical proof, fundamental research]:
- Univeristy Research Faculty, Government Funding, Technology Transfer offices (Partially)
2. Product Development
[real world testing, commercial demos, proof-of-concept]:
- Corporate Sponsors, Government Funding, Business Angels, Technology transfer Offices (partially)
3. Go To Market
[production, in operation, recruit new skills]:
Funding Gap!!
- Closer collaboration needed from governments, deep tech investors
4. Growth
[Commercialize, Partner Integration, Scale Tech]:
- large share of foreign investors, large generalist VC funds, from US and Asia, for EU Deep tech increase to nearly 50% at late stage / growth
Structural Specifics in Dynamic Deep Tech Ecosystems
- era of dedicated specialist niche and ecosystem funds -> highly technical new paradigms, very dynamic ecosystems with lack of norms and standards
- hurdles for General Tech VCs to invest at the forefront of Deep Tech
- niche funds are often complemented by sector-native Business Angels
- Tech allows for new structures in crypto e.g. tokenization of the fund itsel, token funds
- dedicated public funding programs available
New Types of Agreements are Emerging
Simple Agreement for Future Tokens
- if there is token launch before expiration of contract, company will automatically issue to the purchaser a number of units of the token equal to purchase amount divided by discount price
- VC will provide wallet address
- Vesting Schedule: XX% of tokens will be vested at Token Launch and will start releasing after YY months at a rate of ZZ% per month
Global Distribution of Blockchain VCs
- North America 50%
- Europe 25%
- Asia 20%
VC activity in 2022
- despite bearish market trends, VCs raised significant amounts of funds
- in fact, **in first half of 2022 **blockchain VCs were able to raise record highs but decline in Q3 and Q4 ($33 bn in total)
- this corresponded to highly volatile market environment and scandals such as Terra Luna Crash, 3AC Liquidation and FTX Fallout
- many large crypto funds were closed in 2021 and Q1 2022
Importance of Blockchain Venturing
-** 5% of total number of VC Deals** in 202 were blockchain deals
- 6% of total amount invested by VCs were in invested in blockchain ($33 bn)
Distribution of Blockchain VC Deals
2022
- 39.9% in Web3 in 2022 vs. 14.6% in 2021
- 20.9% Infra
- 15.9% DeFi in 2022 vs. 32% in 2022
- 15.4% NFTs
Success factors in crypto venturing
- deep understanding of technical paradigm shift and socio-economic implications
- connecting with relevant communities (developer-centric, abstract and theoretical)
- building international network within space
- seeking (smart) capital
- incorporation with regulatory clarity and competent consultants
make use and adapt to novel team and project structures (DAOs)
Strucutral Specifics of Crypto Investing
1. difficult to identify sustainable business models:
- highly technical new paradigm
- correlation between investment success and overall crypto market
- high percentage of intransparent projects e.g. ponyi schemes
-
complex deal design
- asset diversity: tokens, equity & Tokeyn / Equity - Hybrids
