What’s Behind the Multi-Billion Dollar Venture Capital Interest in Crypto?

The mercurial rise in popularity for the ICO fund-raising model has led many industry observers and evangelists to conclude that the days of venture capital are long gone.

 

Indeed, the market for ICOs has exploded in the past year and a half. During the first quarter of 2018, ICO funding easily outstripped the full year sum for 2017. The ability for retail investors to contribute to projects they believe in, and the freedom it grants companies themselves, made ICOs appear as the only solution going forward.

 

Even so, the VC world has not stayed on the sidelines as many participants would be led to believe. The sector’s search for new profitable ideas and opportunities meant that eventually, the draw of cryptocurrencies and blockchain would be too strong to pass up. Many VC firms have also had time to establish themselves in the ecosystem, with crypto-centric funds starting to appear as early as 2013.

 

The reasons for this interest in a seemingly competing funding model is simple. For VCs, crypto and blockchain offer a market of untapped profit potential that provides significant liquidity and financial flexibility. Moreover, the increasing likelihood that blockchain is here to stay, and its embrace by the mainstream means that a VC company that doesn’t at least have a plan in place to adapt could be left in the dust.

 

A More Efficient Investment Model

One of the problems VC firms have when it comes to a poor-performing investment is their inability to withdraw easily. With traditional funding, once a check is signed and deposited, it is difficult to recoup those funds outside of an acquisition or IPO, potentially notching a sizable loss in VC portfolios. Instead, blockchain gives VCs a significantly more flexible investment vehicle.

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