Who is Blockchain Capital?
Blockchain Capital is the next generation of Venture Capitalism. Founded in 2013, they have gone on to invest and facilitate growth in a significant number of companies. Their focus is on blockchain related start-ups in every stage of growth. They are trailblazers that have embraced regulatory standards and structured themselves with them in mind. Below are but a few of their current investments – A full list can be found HERE.
In May, Cofounder Bart Stephens spoke with CoinDesk regarding their preferred investments. He stated, “You’re going to see us continue to invest globally in the leading crypto companies, but also kind of the next generation of entrepreneurs and sectors outside of financial services. We’ve made investments in healthcare companies, in logistics companies, in identity management. To date we’ve seen a lot of focus on financial services and we really see that broadening.”
What is the problem?
Traditional means of financing can be a cumbersome process. Although there is money to be made, funds are typically inaccessible for a long duration of time, meaning they are illiquid. During this time interests change, markets change, and new opportunities arise. For those that anticipate this, investing funds into an illiquid market may bring pause.
A second issue is the accessibility. Traditionally, individual investors are not able to easily benefit from venture capitalism.
What is their solution?
To address the problem of illiquidity, Blockchain Capital has turned to a new investment vehicle – Tokenized Securities. This new means of investment solves the issue of both illiquidity, and accessibility at the same time.
The team at Blockchain Capital was one of the first VC firms to tackle the idea of a tokenized security. Dating back to early 2017, they were already hosting a STO. At the time, the company face, Brock Pierce noted, “Our view is: let’s just face regulation head on, and see if this can be done compliantly. Once we’ve done this, everyone is going to copy the roadmap we’ve created.”
During the STO Blockchain Capital released their BCAP tokens. A single token represents a share in the Blockchain Capital VC fund, meaning that as the value of the fund increases through investments in various entities, so does the value of the token. As stated before, by tokenizing, a new level of liquidity is realized, as these tokens can be sold at any time. Selling or transference of the tokens is also met with minimal fees, and is a seamless process.
The minds behind Blockchain Capital were very forward thinking. Only now, in late 2018, is the industry really beginning to support tokenized securities. For a long while, many companies were focused on circumventing regulations and the issuance of utility tokens. By planning two steps ahead, the following individuals are only a few individuals that have ensure a bright future for Blockchain Capital.
STO and Fundraising
Taking place in mid-2017, Blockchain Capital held an STO. The sale was brief, with a goal of $10 million being raised in 6 hours.
In more recent months, the company completed a 4th round of fundraising. This round saw them raise funds to the tune of $125 million. At the time of completion this meant over $250 million was under the management of Blockchain Capital.
To learn details about the project, please view our Blockchain Capital Token Listing page.
Benjamin Tsai, President & Managing Partner of Wave Financial – Interview Series
Benjamin Tsai is the President & Managing Partner of Wave Financial. Wave Financial offers early-stage investment, asset management, and treasury management to further the growth of the crypto and digital asset ecosystem
What was it that initially attracted to becoming the President and Managing partner of Wave Financial, an early stage venture fund focused on crypto currency?
My experience is mainly in the finance space, both sell side with BofA Merrill Lynch for 12 years and buy side with AllianceBernstein for 3 years. When I returned to Los Angeles, I started to get involved in blockchain technology and its various uses. The most natural one was to apply it to finance, and that application was most interesting to me. So when I met David Siemer, our CEO, we decided to put together Wave Financial, an asset management firm focused on blockchain/cryptocurrencies.
This platform allows me to explore the limits of the space, such as crypto derivatives. We have recently launched the Wave BTC Income & Growth Fund, which is a fund that pays a target rate of 1.5% yield monthly by selling Bitcoin options in the market. We believe this is an innovative product, first in the market, and should be attractive to both long time bitcoin holders and also new investors in crypto.
One of the index funds offered by Wave Financial is the ‘Select 20 Index’ which is a fund that rebalances itself monthly and provides exposure to the top 20 digital assets. How has this fund performed compared to a more activate trading fund approach?
Comparison between active and passive management is always difficult. This is especially hard in the crypto world, where there is not any established benchmark. We developed the Select 20 Index to serve as the crypto market benchmark that better reflects the market compared to just Bitcoin. With the index as a baseline, we also have our fund which tracks the index. Due to the low fees, we believe we are doing well to provide market beta to investors.
There are actively managed funds that may be doing better and worse, but they would have been taking higher risk compared to the market beta, and also have higher fees. The outperforming ones would have been able to justify the higher risk and fees, but the underperforming ones obviously do not. For an investor to determine which funds could outperform would be very difficult, as track records are very short, and the crypto market is still in its infancy. It would be difficult to show how that alpha capture can be replicated going forward.
In summary, there will be funds that outperform and ones that underperform our index and/or fund. But for clients to take a pure market beta, similar to an equity ETF, our product provides the exposure at a low cost, and is an effective tool for achieving that for the investors.
Wave Financial is clearly bullish with the future of digital securities having invested in both Securitize and Vertalo. What is it about this industry that has you most excited?
I believe the existing infrastructure for equity, fixed income, and various asset classes have all been building and improving on older systems which were silo-ed. As investments themselves become more flexible, the traditional infrastructure is no longer efficiently supporting the new way of asset management. For example, there use to be just bond investors and equity investors, then we had 60/40 target allocations, then the endowment model which included alternative investments of hedge funds, real estate, commodities, and more exotics assets, and so forth. For the next generation of investors, access to these asset classes and being able to get int and out of these assets should become more simple and more available to a wider audience. I believe digital assets can do that.
For example, we are currently working on a kentucky whiskey fund. This fund will give accredited investors access to investing in whiskey, with the opportunity to trade the ownership on the blockchain in a private exchange. This type of flexibility at a reasonable cost was simply not available before the advent of digital securities.
What are some of the issues that security tokens need to overcome to reach mainstream adoption?
I believe that the education and infrastructure are two things that are missing in the industry before we can have mainstream adoption. On the education side, we need to get investors comfortable about tokenization as a technology applied to existing financial instruments that improves the efficiency of it. The legacy ICO marketing issues and poorly thought out projects (along with frauds) certainly has given the concept a negative bias. But education will overcome that with time.
The second part is infrastructure; we need to have well accepted stable infrastructure for doing security tokens. This means issuance platforms (like Securitize and Vertalo) that have transfer agent license which allow them to track/change the ownership of the securities, qualified custodians (like Coinbase and Kingdom Trust) that can help clients hold the security tokens with peace of mind, and security token exchanges (like OpenFinance Network and tZero) that can provide a place for the tokens to be traded.
As an addendum to the infrastructure, we also need better user interface so clients can focus on the investment aspects of security tokens instead of worrying about what chain it’s on and other technical challenges that are not really relevant to their core investment thesis. When I log into Schwab to trade, I don’t think about what OS I am running and what language the interface is programmed in to complete my trade. Once done correctly, it would be very transparent and irrelevant for the users.
Out of all the different types of assets which can be tokenized such as real estate or art, what industry do you personally believe is best suited to tokenization?
Is this a trick question or a softball? I think whiskey barrels are the best thing to focus on!
Seriously though, I think any asset that gives off a cashflow would be interesting. We have looked at real estate, race horses, solar panels, and other ideas that can be done. Whiskey was good not because the portfolio gives off cashflow, but because we can sell a few barrels to generate cash and also provide a mark-to-market for the investors. This is hard to do with a single Picasso; it would be impossible for me to sell a fraction of it.
The real estate space is an interesting one. I am personally a real estate investor in Southern California, so I keep a close eye on this. In the US, deals have not generally been very successful due to the fact that the buyers of real estate are not really interested in the tokenization, and there are plenty of buyers to support the business without it. I believe that the development in Asia will be different, as more people are looking at both real estate and blockchain technology. The two combined should be attractive enough for Asian investors, and it should catch on better than here in the US. I have spoken to a number of top tier financial institutions in Japan, and real estate is an area of focus for them as they look at tokenization.
Circling back to the Wave Kentucky Whiskey (WKW20) that you mentioned earlier. For investors who are not familiar with this, could you explain what this is and the benefits of investing in this asset class?
Although we started the discussion with tokenization of hard assets, Wave Financial are a California Registered Investment Advisor (most of us are FINRA registered) so we have fiduciary duty to our investors to provide good products. We reviewed a number of different assets and decided to focus on whiskey because the return profile is very attractive.
We are able to source a barrel of Kentucky whiskey and store/insure it over 5 years for roughly $1000. In 5 years, that barrel of whiskey is estimated to be worth $3000 to $5000 on a conservative estimate. This is a 3x-5x return over 5 years, and the variability is very low. Also, as this is a commodity, we are able to get insurance for our inventory, which covers the value of the losses if we dropped a barrel or if the warehouse burns to the ground. (This has happened before, as the whiskey is over 50% alcohol!) The downside risk is limited. One last point I would bring up is that we have found whiskey to be very resilient in down markets. From industry research, through the financial crisis, American whiskey had only 1 down year in 2009, and the drop was 1.4% by dollar and 0.7% by volume sales. (This is not an anomaly, Scottish whiskey went up in value in 2009.) All of this means that the whiskey is a very attractive investment asset class in general and especially in this market.
In early 2018, you Co-Founded and became the CFO of the LA Blockchain Lab. Could you share with us some details on what the LA Blockchain Lab is?
LA Blockchain Lab is a non-profit that was founded to connect academia and government in Southern California to promote the use of blockchains. We count UCLA, USC, UC Irvine, and Caltech as founding schools and we work with the City and County of Los Angeles governments to education and disseminate information about the developments in this space.
What are some interesting projects that you have seen come out of the LA Blockchain Lab?
One of the roles we have taken is to provide consulting to large corporates as they explore the use of blockchain. For example, we worked on a project for Lamborghini a while back that explored how they can use the technology. It was fascinating as we presented to the board and had a lively discussion at Pebble Beach. We also consulted with Panasonic and helped them host a seminar on Smart Cities, with the CTO of City of LA and USC professors presenting on technological advances to cities and what more can be done. We plan on further seminars in entertainment, finance, healthcare, and other topics, although we are assessing the situation with the shelter-in-home order in place.
Is there anything else that you would like to share about Wave Financial?
We are very proud of the work we have done for the past few years in rolling out products and providing treasury management services for corporate and high net worth individuals. We think this is the professional and the right way to do business, and we look forward to growing our business to serve more customers over time.
Thank you for this fantastic interview. For readers who wish to learn more visit Wave Financial.
‘The Runway Fund’ Looks to Provide Relief for Start-ups Impacted by COVID-19
Help is On the Way
COVID-19 has had its way with the global economy over the past few weeks, resulting in unprecedented levels of hardship for most of the world.
A select group of start-ups have just been provided a potential lifeline, though. A new fund was recently established with the specific goal of providing promising start-ups with the runway needed to outlast the pandemic.
This is known as ‘The Runway Fund’, and is comprised of a current $10 million – with more on tap if required.
While COVID-19 may be the cause of the world’s current disarray, another reason The Runway Fund was established is due to the nature of stimulus packages announced, thus far. When speaking with Forbes, Hasson elaborated by stating,
“There is a lot of talk of big stimulus and even helicopter-style money drops…But it’s evident that neither the banks nor the government will be stepping in to assist entrepreneurs as their focus is on big corporations. We’re also hearing that VCs are re-negotiating terms and of delays in providing capital.”
At the Helm
The Runway Fund is the brainchild of the cofounders behind OnChain Capital – a blockchain investment firm. The Runway Fund is, however, its own endeavour, and separate from OnChain Capital.
Both Neuner and Hasson are fully enveloped in the world of blockchain and capital generation. This can be seen through their current work at Onchain Capital, and through past works. For example, Neuner is the host of CNBC Africa segment, ‘Crypto Trader’, while Hasson is the previous MD of Techstars.
While OnChain Capital maintains a focus on blockchain based endeavours, The Runway Fund is not restricted solely to those within the sector. It is open to start-ups of any kind, providing they meet pre-set requirements
Decrypt reports that within the first hours of The Runway Fund going live, 5 deals were already under discussing – of these, 3 are blockchain focused outfits.
Terms of the Deal
For those interested in potentially making use of the Runway Fund, don’t get TOO excited. There are parameters surrounding eligibility. They are, however, reasonable and expected.
- In operation with fixed run costs
- Previous capital generation round
- Up to date pitch deck
Providing the company is directly affected by COVID-19, and these three boxes are checked, SMEs in need of help may now have access to a new lifeline.
For those that do qualify, The Runway Fund is flexible in how it can help. Perks go beyond financials, with both Neuner and Hasson intending to take on mentorship roles for fund participants.
From a financial standpoint, The Runway Fund can take shape in the following ways, allowing for participants to choose the option best suited for them.
- Equity Funding
- Convertible Loans
The duo behind this newly established fund took the time to elaborate on their motives. The following is what they had to say on the matter.
“Having lived through the 2008 financial crisis ourselves, we saw firsthand how it impacted our companies.
Whether you were about to close a funding round, or sign your first revenue deal, we know that COVID-19 has caused unanticipated disruptions and delays that may force you to take some tough decisions and maybe even to shut down.
Our goal is to help you through this tough time and to maximize your chances of survival.”
In Other News
Over the time that COVID-19 has been running through the global population, it has managed to disrupt, both, the economy and development of tech. We recently took a look at a few ways COVID-19 has influenced the blockchain sector as a whole. Make sure to peruse the following article to learn more.
Matthew Le Merle, Co-founder and Managing Partner of Fifth Era and Keiretsu Capital – Interview Series
Matthew Le Merle is co-founder and Managing Partner of Fifth Era and Keiretsu Capital – the most active early stage venture investors backing almost 200 companies a year. He is Chairman of Securitize (Europe) and CAH, Vice Chairman SFOX and an advisor at Warburg Pincus.
He is also the Co-Author of Blockchain Competitive Advantage, a book that we highly recommend for both entrepreneurs and investors in the space that is available at Amazon, Apple, and Smashwords in hard and paperback, ebook and audible.
You have been an early stage technology investor in Silicon Valley for decades including at Keiretsu and Band of Angels. Is this where you were first introduced to blockchain, and what initially excited you about the technology?
While both Alison Davis (my wife and business partner) and I have been early stage investors in Silicon Valley since the late 1990’s we had focused on Internet, digital content and Fintech investing. For me that included investing as Managing Partner at Keiretsu – the most active early stage investors in the US – and as a member of Band of Angels. We have made several dozen investments in that timeframe and have seen hundreds more made by the investors that we work most closely with.
However, it was Alison that first became excited by blockchain. She has been a public board company director for decades including currently at RBS, Fiserv, Collibra and Ooma. It was the former (RBS) where she chairs the Innovation and Technology committee of the board that led to her needing to understand Bitcoin in 2013. She went on her own voyage of discovery that eventually led to her joining Bart and Brad Stephens and Spencer Bogart at Blockchain Capital as their Advisory Board Chairman.
For my own part, I initially resisted the idea of blockchain. From the 1990’s onwards I had worked with companies like Cisco, eBay, Google, Microsoft, PayPal and others driving the Internet forward and I was reticent to climb on a bandwagon with people who were saying that blockchain would be bigger than the Internet. In time I came to appreciate that as we move the world forwards towards a fully digital future, we will need enabling technologies like blockchain to complete the journey. We have to solve the issues that the Internet currently has including security, identity, concentration, and the lack of native digital monies and assets.
By 2016 I was fully onboard. Better late than never as they say.
Today in addition to being an active investor in the space, I am Chairman of Securitize in Europe and Vice Chairman of SFOX. I would say that being close to the leading global solution for digital securities and the leading crypto prime dealer has given me insights that are greatly informing our Blockchain Coinvestors investment thesis.
In your book you mention that investors often “miss the forest for the trees”, could you share what you mean by this?
I don’t remember exactly where in ‘Blockchain Competitive Advantage’ we say that. However, investors tend to get very focused on the investments that they have and the ones that fill their mindspace. For most investors that means fixed income, public investments and some large cap real estate. But without exception those are relatively low returning asset classes. Over the last 25 years their annual net IRR has been around 3%, 9 to 10% and 8% respectively. Meanwhile, the driving forces of our time are the digitalization of our world and everything within it, as well as the life sciences revolution that is changing the very essence of life (for better or worse). This is why over the same 25 years the annual net IRR for venture capital has been 24% rising to an impressive 32% in the early stage of venture capital in the US.
We see most investors around the world putting most of their money in easily available, low returning, and relatively efficient asset classes. That is ironic, since we were all taught that only in inefficient markets can we hope for superior returns.
The superior returns of the last twenty years, and we believe of the next, will be derived from technology enabled companies that are driving the digital future and are capitalizing on new disruptive technologies such as AI, big data, the Internet of things, blockchain and so on.
We can’t understand why so many professional investors put most of their capital into low returning asset classes when they all intuitively know that the future will not be the same as the past.
You call this period of unprecedented innovation and disruption the Fifth Era. Could you elaborate on this?
Alison and I were very worried when we first heard the term the “Fourth Industrial Revolution” being used by many of the board directors and senior executives with whom we work and spend time. They seemed to think that the world’s innovators and most innovative companies were merely evolving the Industrial world forwards. Moving incrementally forward along the path that the world began some two hundred years ago when it discovered mass production, new energy sources, and the corporate model of organization with its focus on economies of scale and scope. As we talked with these friends we realized that this mindset was leading them down mental paths that were not helpful.
This is not an evolution of the past, or a new phase of the industrial revolution. Rather we are moving into an entirely new era of human existence in which the very conceptual underpinnings of the Industrial Era are being challenged and, in many cases, undermined.
We believe that if you accept this notion that the future is going to be fundamentally different from the Industrial era that we are passing out of, then you naturally take on a mindset that allows you to better see the shape of what is coming – the ‘wood for the trees’ if you will.
So, we named this new future the ‘Fifth Era’ in our book “Corporate Innovation in the Fifth Era“.
How can investors best capitalize on this Fifth Era that we are entering?
That is at one and the same time both very easy and very hard.
It is easy because all you have to do is change your allocations from a dominance of fixed income, public equities and large cap real estate towards a great allocation to private investments and especially early stage technology company investments. Just like the best investors have done years ago. For example, among endowments, everyone has heard of how Harvard, Stanford and Yale allocated more to early stage private investments twenty years or so ago, and have become the highest performing university investors of our time.
But most endowments globally do little of this investing even though they have heard the story for years. Why?
Because it is also hard. Much harder than creating combinations and permutations of publicly traded stocks and ETF’s. And much harder to access given that the big advisors, wealth managers, banks and so on only really have access to fixed income, public equities and large cap real estate. They make it easy to keep your capital in those asset classes. They tell a story that it is very hard to access the highest performing asset classes and that their performance is ‘fake’ or ‘illusory’. So, it in practice does become hard to step out and become a different type of investor. But primarily because you believe it is going to be hard and so in many cases don’t really try very hard to change how you invest – it is a mindset issue.
For those of us that have focused on creating the access for ourselves, we have done so. Whether angels, venture capitalists or investors in early stage venture funds, we have found a way to get capital into the hands of the most capable innovators and their companies.
But the easy path in investing is to focus on the access others will give to you, and that is always to the large, efficient asset classes which represent the past rather than the future.
In your book you detail current “barriers of adoption” for both DAPPs and blockchain projects. What do you feel are the current “barriers of adoption” for digital securities?
For the most part we believe that the world’s capital will continue to flow through the hands of the largest institutions who manage the capital on behalf of others (pension funds, endowments, insurers etc) and will be invested into products created by the world’s leading asset managers. And that these flows will continue to be highly regulated and will include traditional intermediaries, exchanges and so on.
While that may not be a popular view within the blockchain community, and we do agree that peer to peer, and direct access will become much more important in the future as well, we hold to the view that the bulk of the world’s assets will pass through traditional players.
So, the mass of digital security solutions have to be delivered in the context of the transformation of existing investment ecosystems. That is a significant challenge, not only because we have to deploy new technology solutions in order to create digital securities, but we also have to solve the issues of security, identity and trust and so on. Furthermore, we need to do this with existing players and within the context of existing regulatory structures. This is a very complex task of education, development and harmonization on a global scale. It is this task that the team at Securitize has taken on and we are very excited to be helping them in this regard.
While in the long tail it may be easier to bring point solutions of digital securities to specific groups of investors through new digital channels, we don’t think those represent the mass of adoption that will eventually come to the space. They are very important trailblazing evidence of what is possible, and we like to invest in those players too. At SFOX we are lucky to be working with the team that built the leading crypto prime dealer and it is amazing to see how they have not only combined the world’s exchanges and OTC brokers to create unprecedented liquidity in Bitcoin and other traded cryptomonies, but to also deliver the lowest prices and best trading edge to their clients. Once again, we can’t understand the inertia that leads to investors using solutions that are higher priced and less capable.
But the dog is the transformation of today’s investment marketplaces, while the tail is the creation of new disruptive investment marketplaces.
You and Alison are the Managing Partners of Blockchain Coinvestors which invests through investment vehicles into well-known blockchain companies, with an emphasis on early stage equity investing. Could you tell us a bit more about the size of this fund and the companies that it will invest in?
By law I can’t talk about the fund itself to an audience I don’t know, but I can share our investment strategies.
Simply put, we believe that the best practices of early stage investing continue to be true and will be the drivers of value creation in blockchain investing too. These are simple to say, but hard to execute. Invest early in the best teams alongside the best investors focused on the space. Get the broadest and most diversified coverage you can without diverging from this core strategy. Do it on a global scale. Make sure that the combined portfolio of companies that you are invested in has access to the capabilities, relationships, and other advantages that mark out the winners from the also ran. Then look for follow on investing opportunities as the emerging unicorns begin to surface.
For Blockchain Coinvestors this means that we are investors in the top 10 to 15 blockchain venture investors around the world including 1confirmation, 1kx, Blockchain Capital, Blockchain Ventures, BluFolio, Castle Island, DCG, Fabric, Future/Perfect, Ideo, Pantera and others. We have a combined portfolio now approaching 100 blockchain companies and are investors through this strategy in 9 of the 15 blockchain unicorns.
The access has taken us six years to build and we are very excited to be able to deploy capital in this way. We are always interested in talking to investors who want to learn more.
When looking at investment opportunities you like to forecast the state of the industry in ten years. Could you describe the future that you envision for digital securities ten years from now?
It is inconceivable to us that in the future there will be ANY paper based securities. Despite the fact that today more than half of the world’s assets are held on paper – most real estate, most funds, most private corporate investments, many fixed income investments and so on – that can’t be the future.
So, we are absolutely confident in asserting that in the future ALL securities will be digital.
Of course, the question is what is the path to that digital future and what will be the timing by asset class and by geography.
In the next ten years we believe that the world’s major financial centers will all have embraced digitalization across all asset classes and that the best issuers, investors, intermediaries and exchanges in those global financial centers will have made it a long way towards that future. The leading global financial centers have to be innovation leaders to remain in the lead and as we speak to the leadership in New York, London, Zurich, Tokyo, San Francisco, Chicago, Hong Kong and so on, we hear them saying exactly this back to us.
However, that does not mean that in ten years ALL securities will be digital. Just like you can still buy vinyl records, or classic cars, we are sure you will still be able to buy some paper from someone if you want to hold your capital in that format.
Though we are not sure why you would want to.
At Securities.io we often come across projects promising to tokenize everything from VC funds, to art and real estate. Which type of tokenization projects make the most sense to you, and have the most potential for real-world mass market adoption?
We think investors want quality assets that they know represent good investments from blue chip names that vouch for them, are prepared to ensure quality issuance, custody, trading and settlement etc. So, for us, quality matters in investments. So, it is less an issue of which asset class, and more an issue of whether the specific investment is a quality one.
The good news is that at Securitize and SFOX we are working with players that are keen to bring some of the world’s most attractive asset classes to a native digital format, and you should expect to see these types of offering later this year and in 2021.
Do you have any final words for investors in the space?
The main thoughts we would like to leave your readers with are:
– Investing in the future has got to be better than investing in the past
– The highest returns come from early stage technology investing. This is a fact, not simply an assertion
– You can have access if you want it. But it won’t come from traditional players who wish to keep your capital in easily accessible, efficient and low returning asset classes
– Finally, all the world’s asset will be digital in a digital world, and blockchain will be an important part of making that happen
To learn more about how Matthew views investing opportunities in the blockchain space we recommend reading Blockchain Competitive Advantage.
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