The venture capital industry provides the funding necessary to fuel startups that disrupt technology. But can a startup disrupt the venture capital sector itself? That’s what Blockchain Capital is poised to do following its successful $10 million round of financing for a new fund comprised partially of crowd-sourced digital currency.
Blockchain Capital, a venture capital firm that invests in startups in the digital currency space, closed its offering within six hours, having reached its goal at an incredible pace. The fund was launched on Monday with the assistance of Argon Group, a digital-finance investment bank. This is the third fund that Blockchain Capital has launched since its debut about four and half years ago.
The Death of Venture Capital?
The $10 million offering consisted of BCAP digital tokens, Ethereum-based smart contract currency that give investors an economic interest in Blockchain Capital’s fund. The tokens are expected to be issued in early May.
The $10 million raised for BCAP tokens are a fraction of the $50 million total that Blockchain Capital intends to raise with the new fund. The other $40 million will be raised in traditional fashion.
BCAP tokens can be purchased by anyone using dollars, bitcoin or ether. Last week, Blockchain Capital co-founder and managing partner Bart Stephens said that “we expect the majority of the funding will come from a combination of bitcoin and ether,” while “a small percentage will come from U.S. dollars.”
While startups have used Initial Coin Offerings (ICOs) to raise venture capital for project execution in the past, they are not generally used to raise a venture capital fund for direct investment. Blockchain Capital believes that there are several other factors that make this a pioneering fund as well.
For one, the new fund is being raised in a way that fully complies with regulatory policies and does not attempt to circumvent them using loopholes, according to Brock Pierce, managing partner at Blockchain Capital.
“[Past ICOs have relied on] convoluted structures for the purposes of circumventing securities law,” Pierce said. “There are some serious regulatory concerns from my perspective."
In contrast, Pierce explained, the new Blockchain Capital fund will comply with SEC Regulations “D” and “S,” which govern investments from within and outside of the U.S., respectively. Those rules mean that the fund can accept contributions from a maximum of only 99 U.S. investors, but there is no limit on the number of foreign investors. More than 1,000 investors have signed up so far, according to Stephens.
The fact that anyone can invest also made this a different offering from what comes out of most venture capital funds, Stephens said, noting that “traditionally, you have to be one of two groups of fancy folks to invest in venture funds.”
By opening up the fund to everyone, Blockchain Capital hoped to “provide access to the rest of the world,” Stephens said.
Stephens also believes that the new fund is innovative because investors will be able to continue trading the BCAP tokens on digital currency exchanges once they have bought into the fund. He believes that’s significant because, normally, “when you invest in a venture fund as a customer, you're locked up for ten years. It's an illiquid investment.” BCAP tokens will remain liquid for the investors.
By providing an opportunity for anyone to purchase a stake in a VC fund using digital currency, Blockchain Capital hopes to disrupt the traditional VC industry significantly.
“This will be a hallmark event,” Pierce said of the new fund. “It will be the death of venture capital.”
Empowering the Unbanked With Blockchain
In the long run, Blockchain Capital’s ambitions don’t end with just disrupting the venture capital industry. Stephens said that he sees the success of the new fund as an important step along a longer path that leads to changing the way capital is organized and accessed around the world.
Three billion people don’t have access to traditional financial services of any kind, Stephens explained. By making it possible for individuals in this group to participate in investment opportunities, digital currencies will help to change the entire world, he said.
Stan Miroshnik, CEO of the Argon Group, agreed that the new fund is about “giving people more access” in addition to demonstrating “what a compliant process looks like” for companies that want to use digital currency to fund growth.
While Miroshnik noted that the new fund represents an experiment — hence the decision to raise only 20 percent of the new capital using digital tokens rather than going all-in — he hopes the example will lead to new understanding and help make digital currency a mainstream capital instrument.