A Vision for Venture Capital
Updated: Nov 28, 2018
The summer after my freshman year of college, I worked a terrible digital marketing internship at Simon & Schuster in New York City. I watched the death of the publishing industry take place before my eyes. On the bright side, however, I began to develop a sense of purpose in my professional life (one that would, ironically, lead me to becoming the editor-in-chief of a print magazine years later!). So I created a LinkedIn profile, and when I came to the “Summary” section of professional networking website, being the haughty son-of-a-gun that I am, I wrote “I want to change the world.”
More than a half decade later and I haven’t changed that summary. Though it may be somewhat off-putting, it has defined my professional journey: first, as I made the transition from the world of politics to technology, and then as I carved my path in the world of bitcoin and blockchain technology. I cofounded a global educational network to inform and prepare young people about this promising innovation, the Blockchain Education Network, and then I helped start a revolutionary prediction market platform, Augur. Along the way, I supported Jason King in his attempt to end food waste and hunger with his nonprofit, Unsung.
Then, about a year and a half ago, I joined Blockchain Capital, as an entrepreneur-in-residence. At the time, the plan was for my residency to last just three months. However, as fate would have it, the team and I had wonderful chemistry, and I was offered a permanent position. While I loved giving entrepreneurs the capital necessary for them to change the world and fulfill their dreams, I felt somewhat detached from the revolutionary zeal of being a founder. I began to think that it wasn’t possible to stay to true to my LinkedIn summary and be a venture capitalist. But then one day, a few months ago, I received a call from one of our managing partners, Bart Stephens, and he had a proposal that made me rethink what venture capital could be.
Bart told me that he and the two other managing partners, Brock and Brad, were contemplating a digital LP interest in our third fund, in the form an Ethereum-based token offering. For those who are unfamiliar, Ethereum is a blockchain, like Bitcoin, except designed to facilitate the execution of decentralized applications, known as smart contracts, which enables the development of application-specific crypto-tokens. A spark was ignited at this proposal.
I had already developed an application token for Augur, known as REP, for which we had raised over $5.5 million (and now trades at a market capitalization of over $100 million.) Nobody had to sell me on the potential of disintermediating traditional financial institutions to put power in the hands of the people, but this was still bold. Venture capital firms, like all of private equity, are heavily regulated, particularly in the post Dodd-Frank era. This was not only a significant undertaking from a compliance perspective, but also from a framing perspective.
By creating a tokenized LP interest in a venture fund, Blockchain Capital is effectively democratizing access to one of the most lucrative (albeit relatively risky) forms of financial investment.
Historically, only the richest and most well-connected individuals and institutions have been able to invest in venture funds, and thus gain exposure to early stage startups working to change the world. This dichotomy is representative of the greater income inequality in our society— where the rich get richer and the less well off have no exposure to potentially extraordinary returns from successful startups.
While investing in a venture fund is more risky than investing in public markets, there is no reason why normal investors should not be able to evaluate that risk for themselves. Unlike angel investing in pre-IPO companies, which is costly and unlikely to be lucrative without significant capital to deploy across many startups— investing in a venture fund is somewhat similar to a mutual fund, in that it spreads risk across a large number of startups. This is important as, on average, only one-fifth of investments made by a VC will generate a return for a fund.
With the Blockchain Capital token (ticker: BCAP), normal investors across the globe can now not only gain exposure to a VC fund for the first time ever, but also to the bitcoin and blockchain startup ecosystem. This is consequential, as there are no real publicly traded companies in this industry. For those who believe cryptocurrencies and distributed ledger technology is going to change the world, this is the first chance for those believers to take a stake in the companies at the helm of this revolution.
The BCAP token offers a vision of venture capital that is a radical departure from traditional private equity. It is a vision, like that afforded by blockchain technology in general, of decentralization, public accessibility, and transparency. No longer will the value of a venture fund and firm be determined over the course of a decade, or decades, but in real time— not just by pension funds and university endowments, but by every day investors and technology enthusiasts. Liquidity is the name of the game here, and the game will never be the same as a result. As a firm believer in the wisdom of crowds, this can only be a good thing.
Assuming the success of the Blockchain Capital token offering, I predict a paradigm shift in how the world of finance understands limited partnerships. We have done the sort of regulatory and compliance due diligence that could lay the ground for entirely new fund-raising framework. With access to this form of investment granted to the masses for the first time ever, we truly will be changing the world.
If you’re interested in the offering, please visit vctoken.com.