VC investments fall sharply, but blockchain usage rises

A new report from CB Insights said investments in blockchain technology start-ups have tanked so far in 2019, and could end the year 60% lower than 2018. But the interest in the technology in the corporate world appears to be booming, with Fortune 500 companies investing more time and effort in bringing blockchain projects to fruition.

Just in the last 72 hours, two blockchain projects took big steps forward, with companies like McDonalds, Virgin Media, Ford, and BMW entering or advancing involvement with coalitions seeking to bring distributed ledger technology into the automotive and advertising industries.

In its 2019 Blockchain Trends in Review report released on July 18, technology funding market intelligence firm CB Insights found that at current rates, venture capital investments in blockchain companies will drop to $1.6 billion this year, compared to $4.1 billion in 2018. In terms of corporate participation in deals, funding of blockchain companies is on track to drop 36% in 2019.

Noting that its VC investment numbers do not include participation in token sales, CB Insights predicted that there will be only 454 start-ups funded, compared to more than 800 in 2018. The amount of money going to seed and Series A deals is actually up a combined 8% (gathering 88% of all VC investments), while midstage Series B and C investments are relatively stable. 

But “later-stage deals (Series D and later) are nearly absent,” the report found. “This growing share of early-stage deals suggests that blockchain is still a very nascent category.”

That said, startups are no longer the only game in town when it comes to building blockchain solutions. 

IDC’s Worldwide Semiannual Blockchain Spending Guide, released in March, came to the exact opposite conclusion, predicting worldwide spending on blockchain will nearly double in 2019, growing from $1.4 billion last year to $2.9 billion. 

“Blockchain is maturing rapidly,” James Wester, IDC’s research director for worldwide blockchain strategies, said at the time. “We have reached an inflection point where implementations are moving quickly beyond the pilot and proof of concept phase.”

The reason for the two vastly different analyses is that IDC looks at spending, not investment, Stacey Soohoo, research manager for IDC Customer Insights & Analysis, told Modern Consensus.

VC investment is “a small slice of the blockchain story,” she said. “We specifically focus on spend by end-users on blockchain solutions, implementations, and projects, and currently exclude cryptocurrencies from our market assessment… Think hospitals, retailers, professional service organizations, manufacturers, universities, etc.” 

She added, “while investments in VC and the adoption of blockchain and similar technologies are interrelated, there isn’t necessarily a direct correlation.”

Driving trust

Based on blockchain announcements from just the past three days, IDC has a point.

On July 17, an automotive industry association announced that more than two dozen members including Renault, Ford, Honda, and BMW have launched an effort to create a standard for a vehicle identification (VID) system on a blockchain. Other members include insurers, auto loan providers, and companies in the blockchain business including IBM and Accenture, as well as IOTA, ConsenSys, Hyperledger, DLT Labs, and CPChain.

The Mobility Open Blockchain Initiative‘s (MOBI) Vehicle Identification Working Group seeks to create a digital vehicle identity system that “will be the cornerstone of a new realm of blockchain-based solutions for the mobility ecosystem,” according to Sebastien Henot, manager of business innovation at Renault’s Silicon Valley Innovation Lab, who chairs the working group.

“The creation of a blockchain ‘digital twin’ will enable connected vehicles to securely identify themselves, share data, and transact with other vehicles, infrastructure, and their environment,” he said.

The group’s goals go beyond the initial VID system. Eventually, the system will include a trusted and immutable record of the vehicle’s history, including ownership and key events such as maintenance. 

“A crucial first step to enabling these networks is for participants to be able to identify each other in a way that everyone understands,” said Alan Gordon, the working group’s co-chair and a technical leader at Ford’s Palo Alto research center.

A day earlier, British media and advertising industry association umbrella group JICWEBS announced that Nestlé, McDonald’s, Virgin Media and their ad agencies had become the first major brands to sign onto a year-long blockchain pilot project intended to show how blockchain technology can improve transparency, efficiency, and trust in the digital advertising supply chain. 

The goal is to have companies from all facets of the digital ad world participate, including advertisers, agencies, trading desks, demand- and supply-side platforms, exchanges, publishers, and verification companies.

“This technology offers us the opportunity to see a truly transparent picture of our investment across the digital supply chain said Kat Howcroft, senior media and budget manager for McDonald’s UK and Ireland. “We are also eager to understand the potential impact that this may have on our ROI and efficiency.”