At the start of last year initial coin offerings (ICOs) were backed largely by cryptocurrency investors themselves, and while a few bitcoin ‘whales’ threw around larger chunks of cash, ICOs began as crowdfunding at its purest, with thousands contributing small amounts to create millions.
However the investment opportunities presented by this nascent form of funding didn’t go unnoticed by traditional investors, and before long the VC or hedge fund model began to be translated into the world of crypto.
Digital currency-specific asset funds began to pop up all over the world, with some examples from abroad including Blue Block Capital and Luna Capital.
Closer to home, Australia’s first crypto fund Apollo Capital launched at just the end of last year, and this year prominent ASX-listed blockchain consultancy DigitalX set aside nearly $1 million in Bitcoin and Ethereum to fund investments into blockchain and cryptocurrency companies.
“We believe cryptocurrencies are under-researched by mainstream asset managers and there is an opportunity to leverage our expertise in Blockchain technology and crypto-asset investment to create value for our clients,” DigitalX managing director Leigh Travers said at the time.
All these companies are managing war-chests worth multiple millions of dollars, ready to invest into fast-growing and innovative cryptocurrency companies.
Why there’s money for crypto
Traditionally, funds have quite a few options when it comes to investments. They can go for bonds, stocks, or ETFs like traditional managed or hedge funds, or go down the riskier route such as venture capital or private equity funds.
But for the majority of these investment strategies, the returns are either minimal or extremely long term. An average return for hedge funds last year was around 5.6%, and the returns are similar for managed funds over the same period. Returns over one year on ETFs differ wildly, but often sit around the 12% mark.
Venture capital and private equity are a different story altogether, with the typical ‘minimum acceptable returns’ for a VC fund sitting around 20–30%. However, that return could take years to realise, due to the inherently illiquid nature of venture capital.
But take a look at ICOs. If you had put just $10,000 into Antshares (now NEO) during its ICO you would have received around 312,000 tokens. Today, those tokens would be worth over $34 million, a more than 346,000% return on investment. A similar investment into IOTA would have turned your $10,000 into $25 million.
So you can see why traditional investment and venture capital funds are lining up to get on board the crypto investment train. And their influence can be seen in recent ICOs worldwide, selling up big chunks of tokens to early investors who hope to see strong returns down the line — even after the usual 12–24 month escrow periods.
A recent Australian ICO, Havven, sold almost $35 million of its $39 million ICO to early investors, leaving $4 million worth of tokens for public participants in the sale.
ICO investment funds are hitting the big time.
Not just any ICO
And while I may have spent most of the above getting stuck into traditional investment methods, there’s a lot to be said for the processes and confidence instilled by venture capital backing.
Startup founders say time and time again, receiving venture capital from a fund is just like getting married. That’s because you’re not just receiving a line of funding, like you would through something like debt financing, you’re receiving a partner, mentor, and advisor who’s there to help ’til death do you part.
Venture capital also instils significant confidence in a business, as funds don’t just hand out wads of cash willy-nilly. Often months of painful and stringent due diligence pre-empt the deal, which means that a venture-capital backed business is often considered a solid and promising company.
Liven has received over $11.5 million in conditional venture capital and angel funding to date prior to the announcing of its ICO. This is unprecedented for an Australian crypto company, and further reinforces Liven as one of the most well-established companies to ICO, ever.
Read more about how The LivenPay project is building a stable cryptocurrency for the real world, and making the capabilities and benefits of blockchain technology accessible for brick and mortar businesses and everyday consumers in this announcement.