The Rise In Blockchain Technology Could Change VC Investment Landscape
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Venture Capital-backed investment deals have presented strong performance indicators over the last few years, even as the global pandemic caused some companies to put investment deals aside for time being.
According to reports by KPMG, VC-backed companies raised more than $808 billion globally through 5,418 deals at the end of 2020. Now investors are steaming ahead, as global VC funding soared past $300 billion, adding to be the second biggest year in VC-backed funding since the turn of the decade.
So far 2022 has presented a robust global VC investment market, with more than $144.8 billion in global funding deals penned for the first quarter of 2022.
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Industry experts are battling it out among their peers to secure major deals with upcoming entrepreneurs and startups. And now with the prevailing innovation and development in blockchain-based technology, venture capital deals can soon look a lot different in the coming years.
Big Bucks For Blockchain
Blockchain has seen some incredible support over the last few years, with more competitors entering the market and bigger funding rounds than ever. Global blockchain funding saw its biggest year in 2021, with investments surging by 713%, amounting to more than $25 billion on VC-backed funding deals.
The figures present more than the traditional understanding surrounding the supporting blockchain technology tools and platforms have received in the last few years.
Globally, venture capital parked in blockchain companies and startups has grown faster than what some experts initially expected. The United States saw a record-shattering $6.36 billion of investments with more than 157 deals.
According to Dale. W. Wood, CEO, and Founder of Dale Ventures, a global investment firm, changes, and adaptability would help see a new breed of VC investment deals, that reveals how intangible the global market can be.
Dale Wood launched Dale Ventures back in 2017, after working alongside various industry experts, looking to create value-added investment opportunities for startups and entrepreneurs. Dale Ventures has been able to form remarkable success which is now directly tied to an assortment of investment groups, which allows them to diversify their resources and venture capital approaches.
Consumer interest and institutional demand for digital assets such as cryptocurrencies and Non Fungible Tokens, among other assets, amassed major support after leading cryptocurrency Bitcoin (BTC) managed to its highest ever peak in November 2021 of more than $69,000.
Democratization of the markets and trading platforms has also meant that more investors, from different environments and economies, can tap into digital trading and blockchain-based products or services.
Breaking through all the noise, Digital Currency Group led the pact last year, investing more than $72 million in crypto, fintech, and blockchain companies. The New York-based VC firm has become a household name among venture capitalists, backing seed, early and later-stage investment rounds.
Another major name in this category is SVB Financial Group (NASDAQ:SVIB), closer to the end of 2021, looking toward expanding its influence in the tech and software sector. After establishing a new branch of interest - Tech Investment Banking Team - SVB Financial was able to become a prominent player among other competitors to back blockchain-based and technology startups in the space.
Safeguard Scientifics, Inc (NYSE:SFE) has so far made more than 173 investments according to CB Insights. The company primarily focuses on entrepreneurs in the tech and healthcare sector, supporting upcoming businesses and companies who are open to pushing the boundaries of what contemporary blockchain technology can do for other organizations. In 2021, Safeguard generated more than $61 million in proceeds after selling 7 positions, which resulted in the company returning more than $41 million to its shareholders.
Regardless of their size, or the amount of cash they are pouring into blockchain-based startups and companies, these venture capital investors, among other names, are pivoting towards the growing interest in blockchain and digitization of the broader VC market.
With the growing amounts companies are willing to stake, what could blockchain in return mean for the VC investors?
Tokenized Staking
Under conventional circumstances, entrepreneurs and startup owners will be able to secure financial funding from venture capitalists. But as the rise of blockchain-based technology and software takes form, blockchain can help eliminate the barriers that can stand in the way of entrepreneurs securing the deals they need to get their business off the ground.
With better blockchain-based solutions, retail investors can now lower their risk, putting the investor in direct connection with the entrepreneur.
As startups are now able to raise funds with the aid of blockchain, both VC and retail investors can be offered more liquidity through tokenized staking.
Tokenized staking allows investors to purchase tokens or startup-specific digital assets. From these assets, investors can decide if they want to keep, trade, or sell their assets on the market or within the company operations.
Blockchain develops a new cycle and means of investment. Owning digital assets, and trading them, investors are still putting funding back into the company, while ensuring their protection and liquidity throughout the project lifecycle.
If investors feel that a project might fail, or lose faith in the potential asset growth, they still have the chance to offload digital assets, by selling them back to the business or pegging them against real-world assets such as forex or commodities.
Although tokenized staking offers better risk reduction, it does require startups to have the necessary technology and software available to offer investors digital assets. Whether it is tokens, crypto, or even Non-fungible Tokens (NFTs), startups are constantly willing to innovate their investment process to attract potential investors.
There’s still the potential for small business entrepreneurs to attain funding through traditional capital markets. It lowers the risk they may need to undertake for the development of digital assets, but it decreases their pool of potential investors.
Providing Guidance
Traditionally speaking, venture capital funding mainly revolved around providing financial support, but with the onset of modernized technologies, VC investors can provide guidance and support to owners who are looking to get their business off the ground.
Through early-stage investment based on blockchain technology, owners can revive their take and understanding of the business world. It further pushes them to gain a fresh perspective on their business ventures.
Yet, VC investors can simply offer basic guidance, but through blockchain, it means they can actively participate in the project cycles. Better performance figures allow VCs to see how their investment can grow.
The potential of blockchain in the market of VC investment creates opportunities for a new era of venture capitalism culture. Perhaps the modernized era has proven to offer more than digital assets to users and consumers but improves risk reduction throughout the investment and growth process.
Dynamic Coin Offering in Venture Capitalism
Dynamic Coin Offering (DYCO) is a development model that was introduced by DAO Maker. Through a dynamic coin offering, companies can offer utility tokens that can be supported by the U.S. dollar.
DYCO is however a short-term solution, which can only support startups and investors for the first 16 months of company-specific projects and entrepreneurs.
Simply put, a DYCO will allow VC investors to see initial growth in their investment, but over time, as projects start to become more profitable investors will be able to decide to either hold or sell their tokens.
Startups and companies can decide on the number of tokens in circulation, and as investors start to refund their tokens, these are permanently taken from the DYCO circulation.
The good news, however, as token supply starts to decline, the value thereof starts to increase. For the venture capitalists, this could mean that as other investors start to resell or refund tokens, and projects start to lift off, token value can increase significantly.
The Bottom Line
Whether this is able to catch on in the coming years, it would be up to investors and entrepreneurs to work in collaboration to ensure that guidance and business support are provided throughout the project cycle.
The investment industry is seeing significant change and innovation through the use of blockchain. It may still take time before VCs can take full advantage of what blockchain has to offer for their investment capabilities, but it’s establishing a new line of opportunity for entrepreneurs and startup owners.
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