ICO is changing its risk investment institutions in all directions from 'reporting and retiring,' whether it is optimistic about the blockchain, and it is the dividing line between new-type investors and classical investors. Figure / Vision China
“Financial Affairs” correspondent Liu Yujun/Wen from Silicon Valley Song Yu/Editor
'I have earned more than in the past seven years in the past month. It made me sleepless at night.' said Founding Partner of PreAngel, Wang Lijie. At the time when blockchains continue to create myths of riches, traditional institutions are jogging.
According to Crunchbase's statistics, during the 14 months from January 2017 to February 2018, ICO (Initial Coin Offering) funds were financed by only 49 VCs (Venture Capital, Venture Capital). %, but the amount of funds raised in US dollars has reached 3.5 times the amount of VC investment, up to 45 billion US dollars, VC investment in a total of 13 billion US dollars.
More money is flocking to the ICO market, becoming a strong competitor to VC.
On September 4, 2017, a document issued by a central bank and other seven ministries and commissions jointly issued on “Preventing the Risk of Issuance of Coinage Offerings and Financings” identified the ICO as an illegal fund-raising and blocked a lot of “Chinese Auntie” speculation. Domestic blockchain entrepreneurs have also migrated ICO projects overseas, but these have not stopped the enthusiasm of venture capital institutions.
'Encourage technology, oppose the speculation.' Zhou Xiaochuan, former central bank governor, said that virtual currency, the vast majority of venture capitalists share the same view. However, once the blockchain is entered, it is found that the currency chain is difficult to divide and becomes a blockchain. The difficulty of investment.
ICO is changing the traditional venture capital institutions in all directions from the 'reporting and retiring management system' and whether it is optimistic about the blockchain. In the dispute between the currency circle investor Chen Weixing and the Jinshajiang venture capital Zhu Xiaohu, it becomes a new investor and a classical investor. Boundary line. A popular opinion in the industry is that ICO is subverting VC, and a reshuffle in the VC circle is quietly starting from the blockchain.
Passive involvement in the blockchain tide
“We were also drawn in by a good investment company. It was a normal venture capital fund. Suddenly we found that there was a pile of tokens. From accounting, tax filing, reporting profits, to how to explain it to LP, it was a problem. " Li Qiang, managing partner of Amino Capital, recently had a distress in happiness.
In 2014, in the golden era of high bitcoin currency prices, Li Qiang invested blockchain entrepreneur Ting Ding (Tom Ding). The investment just fell short. 2015-2016 was the winter period of the industry. Silicon Valley killed more than 40 companies. The company also began to adjust and transform.
Judy Yan, the investment manager of Danhua Capital, who has experienced that winter, feels the same way. Since she joined Danwa in 2014, she has been watching the blockchain project: 'At that time, investment decisions were very painful, and I felt that I was not on the road. The reason is that the business model is not particularly obvious.
After the long cold winter, the seeds sowed in the year were spring in early 2017. The entrepreneurs who had submerged for 2 years to 3 years suddenly wanted to understand how the blockchain played: this decentralized network effect, the initial node There will be very few, it is very easy to set up the network effect with the token, because the token is very cheap at first, but as the network gets bigger and bigger, the corresponding value is bigger. This means, Just issue ICO project, but also has a healthy business model and business growth, tokens will continue to appreciate as the network scale increases.
Soon, these early entrepreneurs ignited the ICO market. Today, Ding Lei is a famous child prodigy in Silicon Valley. Ethereum, founded by his friend Vitalik Burterin, was the hottest in the blockchain field. The unicorns will also benefit from venture capital institutions that have accompanied these entrepreneurs through the winter.
'Winter, it also means that these companies are getting financing difficulties, not getting enough money to recruit people and research and development.' Judy said. Regardless of whether it's disdain for the currency, or disdain for high-profile publicity, entrepreneurs who used to blockchain know it better than others. What is happening in the industry? The price of cryptocurrencies has skyrocketed. The investment institutions of these early investment blockchain projects have more and more cryptocurrencies in their hands.
When classical VCs are caught off guard, those VCs who have invested in blockchains have already incorporated 'coin loops' through 5-6 blockchain projects. After distributing dividends to LPs, profitable money can even be established. A new blockchain fund, which is also the universal benefit of the VCs who first wake up in this round of bull markets.
Fengyuan Ventures is an early-stage investment company founded in Silicon Valley in 2012. The founding team members are all technically advanced. Unlike any other technology outbreak trend, blockchain projects not only look at white papers, investors of this group of technology companies will be at GitHub. Watch the team's open source code.
“It was very difficult to compete with top VCs such as Sequoia. Because of their great reputation and experience, the emergence of blockchain suddenly gave small VCs the opportunity to subvert top VCs. 'Li Qiang said, 'First, the technical requirements are higher, The second is the speed, VCs have to consider two weeks before. The big project lasts one month. The blockchain is the fastest one to finalize the cooperation.
Of course, there are many new risks corresponding to this kind of high-yield, as well as new ways of being completely changed.
Raise investment and retreat all-around spoiler VC
Although VC investment in other areas remains the same, investment in the blockchain area completely disrupts the original VC's rhythm.
For ordinary entrepreneurs, financing was once a painful problem for them. Many entrepreneurs are bitter towards investors: Investors have never managed a company but have been gesticulating and have driven founders out of the company through well-designed documents. It took a few hours for a phone call in the hotel to say it couldn't come. The arrival of ICO gave entrepreneurs a more convenient way to raise funds, which also lowered the financing threshold and ran rampant when supervision was not yet in place.
Initialized Capital partner Chen Jiaxing told Caijing: “In the past, some family foundations have invested money in professional institutions like VCs. Now they have found that they can go directly to the ICO market without the middle part. 'This is probably the ICO. The impact on traditional institutions lies.
'Whether or not to invest in the blockchain, we are also watching. First, good projects can be directly ICO, VC's role is changing; Second, investment equity is still tokens, If you cast tokens, Institutional investment and individuals What is the difference in investment? The third is when to withdraw, how to withdraw. ' An investment manager told the "Finance" reporter.
In contrast, traditional VCs have long-term training and have more scientific investment methods.
Before a lot of blockchain projects are publicly funded, there will be one or two rounds of small private placements. Unlike traditional technology ventures that evolve over time and improve product offerings for ABCD rounds, venture capitalists can only enter through pre-ICO private equity rounds. In an aggressive environment, entrepreneurs need the brand endorsements of well-known investment agencies; and skyrocketing currency prices and good projects can bring investors considerable financial income.
Complete changes in the financing process have also changed the way equity investment by traditional investment institutions is. Is equity or token? As a new problem facing the organization. A well-known investor said that once he had invested equity in a project, ICO eventually followed suit. A certain price is converted into a token, but the price is already high at the time of conversion.
Without equity, the open market can also buy tokens. So where are the differences between professional investors and ordinary investors? This is the confusion of many investors. In the past, VC investment required as many shares as possible, and it sought board seats, despite many projects. Prior to ICO, private placements will be held, but both the agency’s share and the power of influence and discourse are declining.
"Now a lot of blockchain projects give you up to 5%. That's good for capital. This is where the capital is going to adapt." Dovey Wan, managing director of Danhua Capital, said that seeking to centralize the company's control has been in vain.
Chen Jiaxing chose to persist in investing in stocks. It is not uncommon for Li Qiang to go into an investment institution that unknowingly took a bunch of tokens. In the recent private placement of Telegram blockchain project TON in Silicon Valley, Sequoia, Benchmark Eighty-one institutional investors entered the market and bought tokens at a price of $0.37 per piece.
With the rapid ICO of many blockchain projects, when to withdraw from the liquidity management, it is an important dividing line between risk investment funds and blockchain funds.
The traditional VC capital cycle is 5 years - 7 years, which means that VC is a long-term business. It can have 5 years - 7 years to accompany business growth. The American start-up company, now from the first investment to withdrawal, M&A takes an average of 5 years, and IPO takes 8.3 years. In the blockchain area, many projects launch ICOs less than half a year after private placement. The lock-up period ranges from 6 months to 3 years, which completely upsets the pace of traditional VCs. In addition, the liquidity is more flexible, and will continue to use income investment after exiting, becoming a feature of emerging blockchain funds.
When the project can be withdrawn in a year or two, refundable, how to use the money after withdrawal, how to calculate the tax, and whether the tokens will be paid out? The short-term cycle of various considerations seems to be deviating from the concept of VC accompanied company growth. In the rapidly changing market of currency prices, it is particularly important.
The risk of zeroing overnight
When many organizations hesitate to invest in blockchains, some people who have first entered the market already harvested the first batch of dividends. Investment organizations that dare to bet on blockchains also make the investment more 'speculative' before huge risks. Something thick.
Now the VC circle lags behind the coin circle, and LPs lag behind VCs. The hesitant resistance often comes from LPs (Limited Partners, generally pointed out) who do not know much about the blockchain, and they update new things. The slow speed is also different from the high risk tolerance, especially in the new VC with the LP run-in phase.
Corresponding to this kind of embarrassment is the life of the investors who invest in it: 'One day coin, one year in the world'. Investment managers are not able to pass the approval of the company, and they directly use their own cryptocurrencies to pass them over to the company for reimbursement. This kind of thing happens from time to time: 'A lot of times you don't have a chance to talk to the project and you have to decide whether or not to vote. 'If you don’t grab it, you may miss a project, or you can obviously enter the first round, but within a few days Become a second round investor.
This strategy evolved to directly raise Bitcoin or Ethereum, which saves the cost of converting the cryptocurrency to the cryptocurrency and speeds up the time for the withdrawal. As a result, the institution exchanges some of the bitcoin or ethercoin for the currency, but this will The risk of cryptocurrency being stolen.
Bitcoin’s early investor Li Xiaolai once said that he was afraid to be stolen in various exchanges and opened accounts; Well-known venture capitalist Tim Draper once lost 40,000 Bitcoin in the Mt.Gox hacking incident. Many investors know that Ming: 'Bitcoin prices may soon fall to 6,000, or it may rise to 60,000'. Within six months, it is very likely that one exchange will be black.'
'The new direction of law and taxation, exchanges have been hacked, Bitcoin prices have changed, everything will be thrilling, because there is money inside. ' Li Qiang said.
In addition to investment institutions, entrepreneurs are also faced with the problem of frequent currency fluctuations in cryptocurrency. If the fundraising of 30,000 Ether coins is a common quota for currency circles, if the price of Ether coins is calculated at $1,000, the project will raise up to $30 million. U.S. dollars; but now the Ether is less than 500 U.S. dollars, and the funds immediately become 15 million U.S. dollars.
"Most entrepreneurs are doing blockchain projects for the first time. When they go up, they won't change their currency into dollars. When they fall, they all want to change their currency. 'Li Qiang said, 'Once the market bleeds, everyone runs. No. '
It has been a matter of debate among US regulatory authorities over who will monitor token trading and ICO. The United States has held three hearings on cryptocurrencies. The US Commodity Futures Trading Commission (CFTC) has incorporated digital currencies into the commodity category and actively supervised it. The U.S. State Revenue Service (IRS) focuses on the cryptocurrency capital gains to perform identity verification; the U.S. Securities and Exchange Commission (SEC) issues dozens of subpoenas to technology companies involved in cryptocurrency.
If you take the time back to the year when the dot-com bubble burst, many people find that not only they have not made money, but also owed millions of dollars in taxes because when the market is good, these earning money will face tax problems. When entering the market again with new revenues, when the market avalanche, after all the losses have been lost, they must make up for the taxes that had to be paid before the profit.
The turmoil in policy direction has affected not only the return on investment and the quoting price of cryptocurrencies. If these taxes are not regulated, it may directly lead to the closure and heavy penalties of investment institutions in the United States.
The regulatory issues caused by bad tax returns, the exchange's money were stolen, and the fall in currency prices led to a decline in earnings. When the regular military meets a grey market, all these market information may lead to the worst possible investment failure.
When to pay a dividend? Such a simple question becomes a game of greediness. Institutions are unwilling to sell when the market is good, and they may be avalanche if they fall.
In addition, many blockchain projects have problems such as fraud, running, and misrepresenting the amount of financing, plus uncertainties about the future. To judge whether a project can be achieved or not, it is necessary to determine whether it is true or false. Jing Yibo, a partner at Jingwei, China, is The circle of friends stated that he is optimistic about the blockchain, but now a white paper can be used to finance the public. It is much more exaggerated than in 1998. The people who invest in ICO are not doing VCs, but are buying lottery tickets.
Investment is easy to create
For investors, the most important thing is always to find a good project. Under the blockchain boom, numerous blockchain funds were established, and there appeared a strange phenomenon that 'more investors than entrepreneurs' in the market. Inadvertently, it is easy to fall into the scandal with the investment company.
Tim Draper, the famous venture capitalist godfather of Silicon Valley, once fell into the Tezos scandal. Tezos, an investment project endorsed by Tim Draper, was the first time that Silicon Valley’s first round of fundraising was the most—$232 million. The team subsequently claimed 50 million. U.S. dollar doing venture investment has caused market disputes.
This is not the worst. Tezos's currency fell by 60% after July's financing was completed. In August, it was announced that it was causing controversy for venture capital. In October, the team exposed the lack of management experience, and the managers gave themselves a profit. After that, more. The problems were exposed: Product development was almost stagnant, technical recruitment was not progressing, and most Tezos tokens could not be extracted. This once-motivated project was invested by investors in October after less than three months of fundraising. Litigation to the court, saying the project is fraudulent.
The fundamental problem with this project is that greed prevails before huge profits. During the pre-sale period of ICO, the initial team and early investors in the fundraising structure design gave the organization a lot of concessions. The architecture design was not favorable to retail investors. Thanks Tim Darper. It was an early investor in the project. Many people invested because of their trust in him. This kind of trust evolved into a kind of accusation when personal property was damaged. The ordinary investor questioned whether he had sold the token early and forced him out. Had to openly refute, saying he did not withdraw.
If Tezos used the $230 million raised to get $50 million in investment last year, it also caused great controversy. This year, these bottom platforms will almost always own a blockchain fund of their own. One important reason is that money on the market Far more than a good project, over-raising is a commonplace in blockchain.
Currently, the projects on the market can be classified into three categories: First, the underlying protocol, high barriers to entry, the need for entrepreneurial technology and cryptographic backgrounds; second, decentralized applications, and in the end, whether the platform is currently in use Business start-ups, these are issues that are placed in front of investors; third, exchanges, quantitative funds and other cryptocurrency peripheral services.
'All projects want to be a public chain. They all want to do the underlying protocol, but the underlying protocol starts from scratch. The development time is as long as 2 years - 3 years. It is difficult, not all technologies can do it.' An entrepreneur told " The “Finance” reporter. The underlying agreement can be understood as a platform, an application store in the Internet world. As this type of project brings together the best talents in the industry, many well-known college professors come out to start a business. When this kind of quality project emerged, it almost became crazy. Object.
A project that was originally planned to raise $40 million has exceeded $150 million in private placement. This excess fundraising occurs frequently in the blockchain area where a lot of money and good projects are scarce. Because the underlying agreement was originally intended to be applied. Stores also need an investment fund to foster the ecosystem of platform applications. Therefore, with the constant emergence of the underlying protocol platform, behind every big platform, there is an investment fund of its own. For a time, it is difficult to do platforms and applications are not good. , And investing becomes a matter of love.
On the other hand, VCs are also behind the scenes of blockchain fever. Some investors have seen various good ideas abroad. They became the initiators of the “Fudge” entrepreneurship. 'Because there are more people flying, they are exposed to a lot of new ones. The idea is that if foreign projects don't go in, look for someone to do it at home, and we invest in it,' said one investor who often flies to Silicon Valley.
In Menlo Park, where Silicon Valley VC is the most concentrated, a frequent meeting room for Silicon Valley star investors, this is a daily blockchain meeting: 'You don't have to be the CEO of a company, you can be the CEO of many companies, if you find This project does not fly, it is withdrawn, at least there are other projects in the hand. 'An institutional investor said to several visiting technicians.
If we say that the blockchain is a wealth myth of 'a night of riches', many people only see the changes in the financial figures of the entrepreneurial team. Most of the projects don't have the qualifications for starting a business. Few people have seen those who have passed the ICO financial freedom. 3. Entrepreneurs dare not speak out about the fear of export.
'Many entrepreneurial projects now have a very good team background. With a white paper, they have raised a lot of money. The project ICO has always had to make products. Many founders are panicked. They have not created jobs, recruit people, do All products have become problems. 'Investors said at the meeting.
These entrepreneurs who took retail money originally had a beautiful background in a technology company in Silicon Valley, and lived a comfortable life. Now they want to retreat. No matter how much the currency they issue, the company can't do it. Go on and get things done. Otherwise, you are suspected of fraud.
There is an iron law in the investment community: Few people can make money when the market is bad. In the rapid development of the Internet in 1997, the world’s best 5% fund had an internal rate of return of over 200%; and in the Internet bubble In the year of 2000, even the top 5% of VCs had an internal rate of return of only 11%.
With the new round of bitcoin price declines, many VCs clearly feel that the gameplay at the end of last year has obviously become unplayable this year. The busyness and benefits in the past six months have been a flash in the past. Before the new round of bear market, many agencies received a Radical at the beginning of the year, began to adjust the strategy.