Bitcoin is setting off a new trend — and no it’s not that blockchain thing you’ve heard about.
A slew of digital assets have been launched, making investors excited about getting in on the next bitcoin on the ground floor and enticing even traditional investors. Some hedge funds are now investing in portfolios of such assets and last month a hedge fund announced its own cryptoccurency.
Jumping on that trend, venture capital firm Blockchain Capital announces Thursday that it plans to raise its third fund, Blockchain Capital Fund III, not only the traditional way, but also by issuing a digital token called the BCAP.
“We’re trying to democratize early-stage venture capital. Historically, there have been a club of people who have had access to all the good deals,” said Brock Pierce, the firm’s managing partner. Listing platforms such as Angel List, Crowdfunder and SeedInvest, he added, “Crowdfunding is democratizing early-stage finance. Taking that same model and tokenizing it is an even bigger leap. We think this is the most democratizing thing in venture capital.”
The homepage of VCtoken
A venture fund digital token could solve a problem in venture capital. “My phone is blowing up with other VCs saying I want to do this — not blockchain and bitcoin VCs — because the biggest problem with venture, the thing everyone hates about venture capital, is that it’s delivered fantastic returns but no one wants to invest in an asset that’s locked up for 5-10 years. The idea you can invest in a venture fund and have liquidity is probably the most innovative thing that has ever happened in venture capital.”
He said the BCAP represented a way that VCs, who finance innovation in other industries, could innovate in their own: “If someone sees how the blockchain is going to impact our sector, we can wait till someone comes along and disrupt us or we can disrupt ourselves.”
For the BCAP, money from traditional limited partners will comprise $40 million of the new fund, and an additional $10 million will be raised through the tokens, with each token being worth $1. More details on the crowdsale will be posted on vctoken.com on April 3.
The tokens will be created on the Ethereum blockchain using a structure that has become popular for creating such assets, and they will be issued by a Singapore-based entity. The Monetary Authority of Singapore does not consider cryptocurrencies to be securities. The law is less clear in the United States, though research into court cases regarding U.S. securities has provided some guidance.
Pierce attributed part of the motivation to launching the token was to demonstrate how it could be done better. Calling the crowdsale-by-token trend by its popular name, “initial coin offerings,” he said, “One of the problems I have with ICOs today is they’ve created convoluted structures to circumvent securities law, which in some cases doesn’t work at all.”
For BCAP, both international and domestic investors will be allowed to buy, but domestic ones must be accredited, which means they must have had income of $200,000 for the last two years or have a net worth of $1 million or more.
Depending on the jurisdiction, international investors will be able to resell them 40 days after purchase, and U.S. investors, after one year. Shares past their lock-up period can be resold even to non-accredited investors.
Stan Miroshnik, managing director of the Argon Group, an investment bank focused on cryptocurrency- and token-based capital markets, which will be managing the crowdsale, said the BCAP was significant for several reasons.
“What you don’t have in traditional LP investment is the freedom to sell your limited partner interest. There’s usually a redemption period, a redemption notice period, a valuation process and then it’s unclear what the value of your piece of the portfolio is. What’s unique here is not only do you have the freedom, but the secondary market tells you what the market’s view of the worth of this asset is,” he said.
However, most likely, the shares would trade on the secondary market at a premium, giving non-accredited U.S. investors a disadvantage when it comes to making returns.
Blockchain Capital was the first venture capital fund devoted to the bitcoin/blockchain industry and has invested in a number of the leading companies in the space, including Coinbase, Chain, Xapo, Bitfury, BTCC, Bitpesa and others.