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BY Risen Jayaseelan - September 26, 2018

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VCs thriving in current crypto market

From left: Kim-Mai Cutler, Nathan Li and Paul Veradittakit
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The current crypto market is working nicely for venture capitalists. Valuations are down, teams are more focused on building product and equity deals are coming to the fore.

This was revealed by a panel of three VCs at last week’s Consensus Singapore 2018 conference.

“We are seeing a lot of great equity deals emerging. These are companies that don’t really need a token, at least not yet. Or those that are building infrastructure for a multi token world. And valuations are coming down,” said Paul Veradittakit, a partner at Pantera Capital and a familiar face in the speaking circuit in Asia.

Added Kim-Mai Cutler, a partner at Initialized Capital, “In market crashes is when you find some of the best deals and the best teams. We have seen this in all the cycles in the Silicon Valley. We may be seeing fewer deals now, but these teams are seemingly more intrinsically motivated.”

For Nathan Li of FBG Capital though, the market is still in a long term uptrend. “Yes it has crashed in the short term. We remain very optimistic about the blockchain and crypto market because sooner or later the decentralised economy will become mainstream. So this is a good time to jump into this space,” he said.

Veradittakit added that before the current downturn, they saw many entrepreneurs who were raising capital but not really building out their projects.

“Now we see teams with their heads down building product. It is easier to retain employees. They are all less concerned with external factors. This is when great companies will be built in this space,” he said.

Li of FBG added that he has also noticed in the last few months that some of the best people from the IT industry and the academic world have come out to start crypto businesses.

Li reckoned that crypto investments differ to traditional VC investments in one notable way.

He said FBG’s focus when they invest in a project is to help build the community of users for that blockchain project, which is a crucial success factor.

This includes figuring out how to incentivise on-boarding of users to blockchain projects.

Interestingly, this means not taking up the bulk of the tokens or equity of the project.

“We are concerned with the tokenomics and we want the founders to be focused on adoption. So the project’s tokenomics design has to be focused on benefiting the broader user base. Here’s the big difference. In traditional VC investment, if you have spotted a top project, you want to take as much allocation of equity to maximise your returns. But the investment logic in the crypto space, is different. If you want to have a long term growth and token appreciation in a crypto project, the VC should be doing the contrary. The VC should be helping the project team to polish up their tokenomics to benefit the community of users. If you take a big position in the token allocation, that project will end up bad,” Li said.

CoinDesk has stated that venture firms have pumped in over US$1.9bil into blockchain and crypto startups in 2018 alone.

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