The rising interest in use cases for bitcoin’s underlying distributed ledger, the blockchain, is influencing the investment strategies of venture capitalists, new interviews indicate. Speaking to CoinDesk, some of the ecosystem’s most frequent and most vocal investors are suggesting they are now working more closely with banks and putting an increased emphasis on projects that use the bitcoin blockchain or alternative distributed ledgers as a payments rail or distributed database.
Bart Stephens, managing partner at Blockchain Capital: „There’s been a realization that [the blockchain is] an incredible tech layer, but the conversation doesn’t end there, you’re seeing the conversation broaden out of financial services, how can it be leveraged for identity management, smart contracts and international trade.”
Others like Aleph Venture Capital partner Eden Shochat, whose investments include blockchain technology firm Colu, expressed more interest in distributed ledger applications, a part of the industry where new startups such as Blockstack, Eris and Multichain are now seeking to separate from a widening pack that lacks clear leaders.
„With bitcoin, we are less intrigued by quick in and outs of the bitcoin system, such as payment processing or remittance using bitcoin as a currency as an intermediate step,” Shochat said. „That’s generally optimizing transaction costs, but there are bigger opportunities, such as replacing inter-company supply chains via bitcoin payments.”
Cross Pacific Capital’s (CPC) Marc van der Chijs was more direct in his assessment of his firm’s interest in the industry. „We look more at blockchain startups, and not pure bitcoin payment companies like wallets and exchanges,” he said.
Van der Chijs suggested CPC is now focused on applications for the technology in international money transfer and for distributed databases. Still, not every investor agrees that these are the immediate opportunities.
For example, Jeremy Liew, partner at Lightspeed Venture Partners, told CoinDesk he believes its use as a store of value is still the most compelling in the short term.
Elsewhere, Stephens spoke to the general increase in interest of major banks in the technology, reporting he has briefed the board of directors at roughly 15 major banks.
„Two years ago banks were focused on bitcoin and were scared as to what that meant, they saw it as dangerous and were scared of how banks would work with bitcoin businesses,” he said. „Fast forward a couple of years, we’ve seen banks increasingly focus on blockchain.”
Stephens said he has been spending more time introducing Blockchain Capital’s portfolio companies to major banks. Blockchain Capital has so far made 37 investments in the industry, participating in funding rounds for major players including Blockstream, Chain, Circle and Xapo.
He continued: „[Banks] have blockchain task forces, and they say we want to learn more about blockchain tech. Based on their answers, we play a match-making service.”
Given the recent interest from major banks in bitcoin and the blockchain, many investors also believe financial entities will soon start looking to acquire industry firms.
„I believe banks can’t innovate and, once they realize this, they will start buying bitcoin and blockchain startups,” van der Chijs said, adding that some will be bought for their intellectual property, while others for experienced teams. „That will be the first wave of bitcoin exits,” he said, though he noted this was not likely to occur within the next four to five years.
Shochat was less convinced banks won’t be able to innovate, suggesting he believes they can leverage their current knowledge to help startups solve problems in their value chain.
„There are so many opportunities, anywhere from clearing and vaults to bank-sponsored wallets and replacing SWIFT,” he continued. „This isn’t the same role as venture investors, but banks can significantly direct ventures toward the right use cases.”
Stephens further suggested he believes financial institutions are „moving slowly” and at this point, are just „information gathering” when it comes to the technology.
„Tendinţele pe care le-am remarcat înainte de începerea pandemiei s-au accelerat pe perioada stării de urgenţă. Am văzut acest lucru ca o oportunitate, un tipping point pentru bancă. Post-pandemie nu avem cum sa ne întoarcem la comportamentul financiar pe care îl aveam până în februarie a.c. Relaţia românilor cu online-ul s-a schimbat. In plus, cardul fizic se va dematerializa. Vom asista la o scădere a cererii pentru cardurile fizice, respectiv la o creştere a preferinţei pentru componenta digitală a acestora.”