This morning, I woke up with a post from Joel Monegro of Placeholder VC on funding crypto networks. It’s interesting exposé on how they approach investing in crypto networks.
You might remember a couple of a days ago where I mentioned him in my post about crypto economies.
The interesting tidbit for me was this:
“Funding networks involves working with OTC desks, brokers and exchanges to buy tokens in the open market and support different price levels. Through the lens of the cryptoeconomic circle, it’s a way to capitalize the network as a whole – and in particular the supply side – rather than directing capital solely to core development.”
In my post about the valuation of crypto companies and the effects of the tokens on their balance sheet and the valuation of the token and network as a whole. Joel writes:
“But when entrepreneurs are selling tokens directly, we recommend they do so in stages to optimize the longevity of their capital – just as traditional startups learned to sell their equity in “series” as the value of the company grows.”
So the VC, in this case, acts as the central bank and the tokens on the balance sheet are expected to be used to fund further funding of the company post-launch of the network.
He basically sees the role of the VC to jump-start the particular crypto economy by capitalizing all the players in the market. This is interesting because it increases the complexity of the investment theme enormously. It’s no longer an equity-for-capital transaction, but becoming an active participant in the crypto economy of that particular token.
I wonder how that changes how VCs work and organize themselves. Participation is becoming much more active and goes beyond the board meetings. I do wonder if they’re really interested in actively managing the liquidity of a token market or that they would like to outsource that to a third-party – let’s say a token bank who takes charge of the liquidity in their name.
Currency is just one of the attributes
Blockchain and crypto can be a solution
Decentralization to centralization
Coin holdings are not a proxy for revenue
Crypto company valuation challenges
Keep that in mind when you fundraise
VCs are not always on your side