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I was a founder of a tech telecom VoIP startup in the mid 1990s that raised over $100m in VC funding, went into a NASDAQ IPO and then experienced the 2001 dot-com telecom meltdown. When the Internet came along in 1993 it totally energized me and years later I cofounded Rubicon Venture Capital which has enjoyed consistent top decile returns as an early stage VC fund based in Silicon Valley and New York City. A few years ago, I became infected with the blockchain bug which was a bit like the second coming of the Internet but this time appeared to have a much more noble purpose. Blockchain technology would make it impossible to lie, steal or make human accounting and payment errors. The crypto market took off in 2016 and 2017 and then had a fantastic crash in January of 2018 and the Initial Coin Offering (ICO) market somewhat crashed and stalled.
"The word cryptocurrency and things like Bitcoin have very much confused a lot of people about the transformational watershed shift that is actually happening here"
Despite what I viewed as a noble purpose many entrepreneurs just saw the blockchain and more specifically the ICO as a way of raising funding for pre-seed otherwise unfundable projects and startups. What we then witnessed was a sea of startups raise capital in a wave of crowdfunding2.0 that not only raised capital quickly from unsophisticated retail investors much like crowdfunding1.0, but this time they listed almost immediately on cryptocurrency exchanges providing unforeseen rapid liquidity. Then in January 2018 and until now most of these tokens have been devalued to their accurate price which is near zero – not a great time to start a digital asset hedge fund. What we have seen now is a return to professional venture capital investing in this new emerging sector with old school levels of due diligence.
Despite me seeing blockchain technology as a way of making business, government and society more honest, I see enormous confusion and lack of education which prompted me to write this article. The word cryptocurrency and things like Bitcoin have very much confused a lot of people about the transformational watershed shift that is actually happening here. The first time many folks hear of Bitcoin their first thought is, “Hmm, this sounds like it is ideal for drug dealers and terrorists to instantly move capital from one location to another globally without any government or bank paying attention.” Our first thoughts when we heard of Bitcoin was for nefarious uses and the word currency in cryptocurrency led most of us to think the purpose of this stuff was to be a proxy for USD, Euros, Sterling, Yen, etc., which it is not. I also think the word “crypt” scares people like some nasty death disease from the middle ages. So now we like to say “digital assets” for the positive view of assets of value that are improved from non-digital assets by digitizing them.
Forget all of the Bitcoin for terrorists stuff! I am not interested in Bitcoin other than the underlying technology and structure of it with blockchain. I am an entrepreneur, a company builder, a venture capitalist - not a speculator. Don’t let Bitcoin, ICOs or any of the rumblings of the crypto marketplace distract you from what is actually happening here and the new era mankind / womankind is embarking into. Most of the readers of this article probably have a bank account filled with a stable currency, amazing credit cards in their pockets that give them access to business lounges in airports and have no need for Bitcoin in their lives. There are billions of people that do not have bank accounts and credit cards and might actually have a use for Bitcoin or some other stable coin; so I don’t blow off Bitcoin or other actual cryptocurrencies by a long shot. But I want to pull minds away from that and towards the indisputable good things that the sooner they become reality the better life will be for everyone. 1) Distributed Ledger Technology (DLT), 2) smart contracts and 3) tokenization – this is what I collectively refer to as a blockchain when I say our VC fund focuses on investing blockchain startups.
Blockchain is changing the way we do business or transactions of any kind. Rather than enter into a business contract with someone where you agree that one party will keep the centralized books tracking how many widgets are being sold and then pay you your fair share; we will put the actual numbers onto a blockchain where the ledger is distributed in many places and it will just be impossible to game or tamper with the numbers. No more lies in business, elections, government corruption, etc. Let me quote a friend of mine. “We see a future world where fraud, corruption, and forgery are a thing of the past. We believe in keeping private data private and securing the world’s wealth because privacy and possession of property are basic human rights.”
We experienced wild market swings in 2017 and early 2018 with the emergence of the ICO market sky rocketing and then crashing down (sound familiar)? People said the Internet was dead in 2001 and now the largest 5 companies in the USA are all west coast tech / Internet companies: AppleMarket cap $1 trillion, Alphabet (Google)Market cap $765.35 billion, MicrosoftMarket cap $833.23 billion, AmazonMarket cap $860.39 billion and FacebookMarket cap $444.78 billion.
Now get ready for some big changes. All stock market securities will be tokenized / digitized, all shares in companies like Apple, Microsoft, all debt markets and bonds will be traded as digital assets unless you are some hermit without dial-up internet access or a smart phone. The Chinese RMB might be digitized by next year. The stock market will become the cryptocurrency market. Again, don’t be thrown off by the word crypto or currency. The New York Stock Exchange will launch the New York Digital Asset Exchange and it will just function more efficiently than the current NYSE and be better for all.
Enterprise blockchain is a huge opportunity in the developed world and consumer blockchain is a huge opportunity in the developing world of the unbanked where even affluent consumers lack access to the same investment opportunities and financial services we enjoy in the West. All those we have in the west will become more efficient, lower cost, higher performing and safer from theft, fraud, even your own bank lying to you. Enterprise tech has hardly begun to implement business transactions using smart contracts and the honesty of the blockchain making it impossible to lie, cheat or commit human error. We are far less than 1% into that transformation moving all of this to the blockchain.
When someone tells you that their word is their bond and there is no need to put a verbal business agreement in writing we think that person is crazy or just wants to not live up to the negotiated agreement. Within a few years we will go from “get it in writing” and that will become “get it on the blockchain with smart contracts.” I voted today (Nov 6) in Silicon Valley and was asked to sign my signature again so it looks more like the one they had on record. As I complied I said with a smile, “Fingerprint, blockchain, done.” A bunch of Stanford University volunteers laughed with a knowing smile. The big question people will ask is – “Why is this not on the blockchain?” …especially a US election.
What will the 5 biggest companies look like in 2040? I am sure they will all have blockchain at their core and the top 10 will be a mix of US and Chinese companies. VC funds will fund these top 10 biggest companies and sell many others to these top 10 with many being funded in 2019 to 2025. Digital asset hedge funds will make sense by January of 2020. 7BC. VC will of course be at the center of all of this.