VC investment in crypto startups on track to eclipse 2017 high

March 06, 2018 12:41
Venture capitalists have been pouring massive funding into the crypto startup sector. Photo: Bloomberg

Despite the price volatility of leading cryptocurrencies at the start of the year, venture capital investment in cryptocurrency startups is expected to surpass the 2017 tally, according to a report by tech data provider Crunchbase.

In the first two months of this year alone, venture fundraising surpassed US$375 million, or more than 40 percent of last year's high water mark of over US$900 million, the report said.

Based on a dataset of about 2,900 blockchain and blockchain-adjacent companies, Crunchbase found that the declines in Bitcoin’s price since the start of 2018 had not stunted the growth of cryptocurrency-related venture investment.

And despite the market hype around initial coin offerings (ICOs), which startups are using to bypass the regulated capital-raising process, venture investment in the sector has kept pace with last year's tempo, with some startups raising hundreds of millions of dollars.

Last year saw sizeable venture rounds such as Coinbase’s US$108.1 million Series D, US$43.45 million invested in Chinese ASIC chip manufacturer Canaan Creative, and bitcoin wallet provider BitGo’s US$42.5 million Series B.

This year is off to a strong start with a US$75 million Series B closed by secure hardware wallet-maker Ledger and US$18 million invested in the seed round of Russian blockchain-for-cargo-tracking platform QUASA, among other big fundraising rounds, Crunchbase said.

In addition to mainstream investors, more “vertical-specific” venture firms focused on blockchain technology have been participating in the funding rounds.

Between 2017 and late February of 2018, Digital Currency Group ranked the top among hundreds of other investors participating in 14 venture rounds, followed by Blockchain Capital, another blockchain-oriented venture firm.

In its report, Crunchbase counted 527 venture capital rounds and ICOs in 2017 and the first two months of 2018, with the former accounting for 68 percent of the rounds.

Crunchbase said the number of ICOs launched was only half of the venture fundraising rounds during the period.

Nonetheless, ICOs attract much more capital that venture funding rounds. Blockchain and related startups raised US$1.3 billion in traditional venture capital rounds, while nearly US$4.5 billion was raised via ICOs.

Crunchbase also examined the locations of blockchain companies that launched venture funding rounds during the period, and noted that the fundraising activities were highly concentrated in a few countries, with the United States accounting for 38 percent.

Singapore and Switzerland also stand out, with each hosting at least 4 percent of the startups that raised venture funds over the past 14 months.

It is said that Singapore and Hong Kong are becoming increasingly attractive to Chinese firms leaving their home base in the wake of the regulatory crackdown on cryptocurrencies, Crunchbase said.

Japan and Malaysia are also popular locations in Asia, thanks to their tolerant regulatory environments.

Crunchbase said that as long as the regulatory environment for cryptocurrencies and blockchain assets remains cryptic in the US, “American crypto-entrepreneurs may opt to leave the country for clearer legal frameworks abroad”.

This article appeared in the Hong Kong Economic Journal on March 6

Translation by Ben Ng with additional reporting

[Chinese version 中文版]

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Hong Kong Economic Journal