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Venture capitalists talk about blockchain startups

Lots of “scammy, spammy crypto projects” right now

Blockchain

What, you have a better graphic for this article? (via Pixabay)

We were back on the Columbia University campus a couple of weeks ago for another panel on blockchain, this time part of the “Startup Columbia Entrepreneurship Festival” series of tech talks.

While the seats in the university’s Miller Theater were more comfortable than in most of the other venues we’ve been to recently, the almost absolute darkness and prohibition on using electronics made note taking a bit more challenging.

Fortunately, this was a more freewheeling discussion among the moderator, Nat Kelner, associate director of the Columbia Entrepreneurship Blockchain Studio, and three venture capitalists who focus on the blockchain ecosystem.

We attended several events earlier in the year where proponents of initial coin offerings (ICOs) shook their fists (metaphorically, though it may well have been literally in some cases) at the powers that be who have dominated traditional capital raising for new companies for decades. Regulators, investment banks, and, yes, venture capitalists are the targets of their wrath.

Here was a chance for some venture capitalists to have their say. But while they pointed out some of the issues around ICOs, they not unsurprisingly believe that venture capital has a place for blockchain startups.

In fact two of the panelists, Brittany Laughlin, a founding partner at Lattice Ventures, and Joel Monego, a founder of Crypto Fund Placeholder, were working at Union Square Ventures when the firm invested in San Francisco-based digital exchange Coinbase. And the Coinbase founding team itself had enrolled in the Y Combinator startup incubator program back in 2012.

Monegro noted that the founding team is most important when evaluating startups and that factor remains the same in the blockchain space. He also said that we are still in the early days of blockchain and crypto, so there is no certainty yet on value drivers.

The third panelist, Wendy Xiao Schadeck, an investment manager at Northzone, weighed in regarding the pattern recognition of VCs claiming to be better at the “who” and the “how” than other aspects.

Of course, meeting the “who” and “how” criteria are not enough, especially if the first of the criteria is allowed to become little more than bias against teams that merely look different than stereotypes. Schadeck added that the space needs more people with diverse backgrounds in behavioral economics, sociology, and the like.

She went on to say that while ICOs are supposed to be about both fundraising and early community building, the latter has not really panned out in most cases. Her prescription for future ICOs is more selectivity around early adopters.

The moderator, Kelner, stated that ICOs have raised an “ungodly” amount of money for young companies. Monegro described ICOs as “Kickstarters with tokens” and believes that there has been significant overfunding of startups via ICOs over the past year. He pointed out that many small investors are losing money in ICO scams that puts the SEC in a tough spot with some regulation necessary.

Laughlin piled on, saying that there are a lot of “scammy, spammy crypto projects” right now with perhaps only 20 percent of the projects in the space that cross her desk even having a legitimate business plan. However, she did add that many traditional companies are looking to integrate blockchain and crypto into their existing business models, indicating at least one way forward for the industry. She added that ICO-friendly countries in Europe are placing a pretty high tax burden on companies in the industry

Kelner spoke a bit about the crypto and blockchain startup landscape in the U.S. but warned against complacency there. Switzerland’s Crypto Valley, Singapore—and even such lesser-known locales like Puerto Rico and Malta—have thriving ecosystems. He pointed out that a big opportunity in blockchain is to bring offline activities online.

When reviewing our notes and photos afterwards, it seemed that there were three different titles to the panel, none of which was really addressed.

“Will Blockchain Liberate the Netizens?”

“Breaking Down Blockchain”

“Blockchain: The Scary Bits are in the Details”

Fortunately, we were later able to get a more concrete idea about the applications of blockchain outside the cryptocurrency area.

Interspersed between the panels during the day were prize announcements for various student startup competitions. We caught up with one of the co-founders of one of the day’s winners, Shanna Crumley, of A4ED. She explained that her company is using blockchain technology to make education credentials—even for non-formal learning—portable and verifiable as a means to assist refugees and other vulnerable populations.

May Day will signal the effective end of conference season at area universities for the academic year, but there are still several excellent and free (or near free) conferences, panels and tech talks still to come before then. We will be searching out and attending as many blockchain and cryptocurrency events on campuses as we can.

 

Michael Hillmeyer has primarily been an independent consultant in the financial services, technology and healthcare industries since 2004. Prior to this, Michael was a senior sell-side equity research analyst at Merrill Lynch covering several technology industries. He owns no positions in any cryptocurrency but writes the “Distributed Leisure” column for Modern Consensus.