Why Blockchain? And Why a Blockchain Award from a VC?

February 22, 2018
5 min read
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We are grateful for our event partners and sponsors: Blockchain Capital, Blockchain at Berkeley, SkyDeck, Accel, General Catalyst, Scalar Capital, Samsung Next, CryptoParency, and Run8 Patent Group.

We have big news to share: Bee Partners is hosting a series of events, the Frontier Innovation Awards 2018: Blockchain, presented by CalFounders, that will culminate in recognition at a May 11 awards night, $250K in equity or token funding from Bee, and mentorship from Monero’s Riccardo ‘fluffypony’ Spagni, who is also serving as the awards night keynote speaker. In the weeks leading up to the awards night, finalists will participate in a Startup 101 workshop geared to blockchain, and then be provided pitch practice and office hours from an all-star lineup of blockchain, startup, and business leaders.

Aligned with our founder-focused ethos and partnership mission, the Frontier Innovation Awards 2018: Blockchain will put founders first, celebrating and supporting them as they build the foundation for their blockchain ventures.

The event represents our own enthusiasm for blockchain-based innovations and the rapidly growing blockchain intellectual community, a healthy representation of which thrives on the UC Berkeley campus (terrestrial and virtual). As it has whenever faced with radically new cultural developments, Cal has led the way in educating its students and broadening the global knowledge base on blockchain. Its spring 2018 blockchain course and two student-led (or DeCal) classes are packed. True to the public service mission of the University, the student group Blockchain at Berkeley, which we’re proud to collaborate with, serves the wider East Bay community. Cal and Blockchain at Berkeley have hosted notable blockchain events which have drawn deserved worldwide attention, including 2017’s Crypto Economics Security Conference and the ICO Financing Conference

VC and blockchain?

Now, I wouldn’t be surprised to hear that the first question on your mind is, Why on earth would professional investors focus on blockchain given the massive ICO fundraising the technology makes possible with no check-writing from venture at all?

I’m happy to answer that because my colleagues at Bee and I have spent most of last year in deep study of blockchain, cryptocurrency, and ICOs, and have found some powerful convergences between those worlds and our own. Our intensive review and our experiences with founders who are basing their businesses on blockchain have confirmed that venture can and should play a vital role in the success of these endeavors.  

The year 2017 strangely felt reminiscent of 1993, as we were living at the dawn of the next internet, or Web 3.0: We were aware of a startlingly new paradigm based in a little understood technology and a set of strongly-held core beliefs. We began our study of blockchain in earnest last summer, crafting our thesis into a white paper and meeting with dozens of experts. Later in the year, we put our research to work, ultimately making our first blockchain token investment in a private, pre-ICO sale in December (official announcement coming soon). Just as we do with traditional equity investing at the pre-seed, we conducted our due diligence around the company’s team, business opportunity, and milestones. It took significant research to understand why blockchain was mission critical to this venture, and to the technology and token-economic solutions proposed. We analyzed and discussed the company’s white paper at length.

As we diligenced, we validated our hunch early on as to why the founders sought professional investors to begin with: They acknowledged that they couldn’t build their solution in isolation and without strategic support. This made it clear: The teams on this new frontier are pioneers in entirely unfamiliar territory. They face massive challenges in both extricating blockchain’s potential as a technology, and in understanding cryptoeconomics and the network economy’s Central Bank-like model. These founders need partners to help them face this brave new world without stumbling and making avoidable mistakes. Ironically, despite the anti-VC headwinds, they need VC partnership more than ever.

Beyond our latest investment, three existing Bee portfolio companies are also exploring blockchain, including Indiegogo, which now supports ICO investments on its platform. We’ve been able to provide these companies with strategic advice at key inflection points and support around the following topics:

  • equity versus token compensation
  • governance (is a foundation needed? a board?)
  • corporate structure (C-corp vs. LLC)
  • team structure (in-house blockchain resources?) and culture cultivation
  • IP needs
  • legal and regulatory considerations (is it a security?)
  • growth-hacking geared to network effects
  • compliant marketing and public relations

A New Trend: Equity before ICO

In instances where an established company is focused on an ultimate ICO, VCs can play a critical role in helping the company achieve product-market-fit before it declares its offering and before tokens are distributed to end users. Prominent examples of blockchain companies that raised equity pre-ICO are Storj ($30M), Brave ($35M), and Civic ($33M). This is a growing trend that inspires confidence in a solid business foundation beneath the token-fueled valuation (and room to pivot as needed, which is much harder post-ICO).

Up Ahead

As with any nascent technology, the most immediate challenges ahead for blockchain-based businesses lie in scalability, infrastructure, regulation, and defining an acceptable user experience. We are excited to be on the frontier with these founders as they explore blockchain’s potential. It is our contention that blockchain is analogous to email for money and that it represents the biggest upheaval in the internet since the Mosaic browser.

The  Frontier Innovation Awards 2018: Blockchain marks our commitment to recognizing and embracing the power of blockchain, its interoperable applications, and the users and connected devices that will transform markets and restructure the fundamentals of doing business.

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