WHAT ARE SPACs AND WHY ARE THEY RELEVANT TO BLOCKCHAIN AND CRYPTO?

Fifth Era/Blockchain Coinvestors Newsletter

Vol. 3, No. 8, April 2021

What Are SPACs and Why are They Relevant to Blockchain and Crypto?

Before launching into the content of this newsletter, we would like to invite you to a new webinar we have just scheduled. Click a link to register:

What are SPACs and Why are They Relevant to Blockchain and Crypto, May 5th 7am PST
What are SPACs and Why are They Relevant to Blockchain and Crypto, May 5th 12pm PST

By the end of the newsletter you will see why we think this subject is important..
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Public Blockchain Companies?

Is it surprising that a movement that began focused on creating financial products to disintermediate established financial institutions would now be sending some of its most promising offspring to be listed on established stock exchanges as traditional public equities? Like Baakt, Canaan, Coinbase, Ebang, eToro, Galaxy Digital, Riot Blockchain and others?

We don't think it is surprising.

In this newsletter we cover the number of blockchain and crypto unicorns, why for some of them public company status is a sensible next step, and the options they have to become publicly listed companies. We expect at least 20 to 30 blockchain companies to take that path before the end of 2021.

And many more in 2022.

How Many Blockchain Unicorns Are There?

Twice a year for a few years now we have analyzed the blockchain ecosystem and published information on those blockchain companies and projects that have reached unicorn status - i.e. that are valued at more than $1 billion. The full list can be found at www.blockchaincoinvestors/portfolio if you click on all three filters under Unicorns & >$1bn Projects. The filters are Blockchain Coinvestors (those our funds are invested in), Fifth Era (those we have invested in outside the Blockchain Coinvestors funds), and Other (unicorns we are not investors in including many the cryptocurrencies). If you do this, you will be confronted by a wall of logos. There are more than 100 blockchain unicorn companies and projects as of the writing of this newsletter and that number is increasing rapidly.

If you prefer, you can listen to our webinar Meet The Blockchain Unicorns to learn a little about some of them.

Why are there so many?

Because as we have written before, all of the world's monies and all of the world's assets are transitioning to be digital and those projects that have already created global cryptocurrencies and utility tokens and those companies that are building the infrastructure to support this new world of digitized payments, commerce, investment, and so on are capturing enormous value. Profit pools in the trillions are in motion. Just as when the Internet companies first appeared and turned our world into a connected, digital, communication platform.

Only this time it is the world of value - monies and assets and payments - that is being digitized. Not just communications.

Why Go Public and Why Do So Through Traditional Means?

What is so fascinating this time around is that many blockchain and crypto projects have invented ways to capture value without needing to resort to traditional capital formation approaches - essentially by building a vast network of contributors, users, fans, and so on, then creating tokens that are central to the operations of those networks, and then using those tokens to attract, motivate, incentivize, retain, and excite the community.

As the network grows, and as the value of the activities of the network increase, so those tokens become more and more valuable - especially those that have a well designed monetary policy in place at the outset.

Of course speculation is a powerful force as well.

So why would a blockchain entity choose to become a publicly listed company on the traditional exchanges?

One reason for some of them is that relationships with established enterprises are essential to their business and public status brings credibility, and also increased awareness. Others have business models less suited to the protocol and utility token route and they see traditional investment funding - venture capital and then public capital - as the right choice for them as their business scales. Or if, like Coinbase, the public market investors will value you in the tens of billions, why not tap into low cost capital from the world's largest and most liquid markets. Especially when capital is so abundant right now with the massive central government money printing of the last few years.

Meanwhile, investors everywhere are seeking return in a very low interest rate environment and are just beginning to understand the exponential growth opportunities facing companies using new technologies to create the world of the 'Fifth Era'. And the massive and unprecedented value shifts that will occur during that transition to the innovation leaders and away from legacy incumbents.

What Are The Options For Going Public?

The options are relatively well understood with one exception. They are:

A traditional Initial Public Offering (IPO) - eg Galaxy Digital on the TSE
A direct public listing - such as the one Coinbase has just completed
An acquisition by an established public company - eg Curv selling to PayPal
A merger into a SPAC - eg eToro

There are pros and cons of each, but in our opinion the SPAC route can be a good option for many blockchain companies if the sponsors are strong, experienced and 'value added'. Here's a quick summary of some of the reasons - and we will go through this in greater detail in the webinars on May 5.

SPAC mergers can be quicker, cheaper and more focused than traditional IPO and direct listing processes.
The blockchain company looking to go public doesn't have to spend time educating an array of traditional investors who may not understand the blockchain space and opportunities. The SPAC sponsors can line up interested and knowledgeable investors who understand the opportunity.
SPAC sponsors are motivated and incentivized to seek out the blockchain companies that can succeed in public markets and to help them be prepared, flourish, and avoid the pitfalls that can trip them up. For example the SPAC sponsors can ensure the control, disclosure, governance, and oversight processes and governance and oversight standards required by the SEC, exchanges, and other entities are in place, and can help support and mentor teams on strategy, successful scaling, team expansion and so on.
The SPAC sponsors have the relationships with the PIPE and DeSPAC backers to do much of the heavy lifting of the capital formation process.

There can be a perception that blockchain companies are anti-establishment and that the establishment does not support them. SPAC's short circuit this dialog by matching those that believe with those that are innovating. The naysayers need not apply.

So we don't find it surprising at all that there will likely be many public blockchain companies in the next couple of years. We think many of them will choose the SPAC process.

Please join us on May 5th to learn more.

Thank you for reading.

Alison Davis
Matthew C. Le Merle

ABOUT BLOCKCHAIN COINVESTORS

Since 2014 our goals have been to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and to capture superior returns from investing in the leading blockchain venture partnerships. The strategy is now entering its 8th year, and so far we are investors in 20 pure-play blockchain venture funds in the Americas, Asia and Europe and in a combined portfolio of more than 300+ blockchain and crypto projects including 20+ blockchain unicorns. Simply put, our funds, SPVs and syndicates represent the best way to invest in blockchain businesses.

FUND PERFORMANCE

Blockchain Coinvestors Funds are continuing to generate strong returns. To date, over 80% of the funds we are invested in are performing as top quartile funds against the Cambridge Associates benchmark. This remarkable performance results from powerful tailwinds driving the world towards a future in which digital monies and digital assets are ubiquitous and the businesses and projects providing blockchain and crypto products, services, and infrastructure benefit disproportionately.

BLOCKCHAIN COINVESTORS FUNDS

Blockchain Coinvestors’ goals are to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and to capture superior returns from investing in the leading blockchain venture partnerships:

Fund III is open only to investors who meet the Qualified Purchaser definition with a minimum subscription of $250,000.
- A “qualified purchaser” is an individual or a family-owned business that owns $5 million or more in investments. The term “investments” shouldn't include a primary residence or any property used for business.
Fund III Parallel is open to investors who meet the Qualified Client definition with a minimum subscription level of $250,000 at the discretion of the Manager. Please contact ir@fifthera.com if the minimum is of concern.
- Currently, an individual or entity is a qualified client if he, she, or it: (i) has a net worth of $2,100,000 prior to investment in the fund (excluding the value of his or her primary residence).

While the two funds are substantially the same, there may be some funds and investments that are only available in the Qualified Purchaser vehicle. Blockchain Coinvestors funds can take investments via IRAs. We support several providers, including AlgoIRA, Kingdom Trust, Millennium Trust Company and Pacific Premier Trust Company (Pensco).

Please visit the Blockchain Coinvestors website to learn more about our offerings. You can also reach our Investor Relations team directly at ir@fifthera.com.

BLOCKCHAIN COINVESTORS SWISS

We are excited to announce that Blockchain Coinvestors Funds are now available through Swiss certificates for those of our non-US investors who prefer this approach. The underlying fund is the same, however, our Zurich based team at Blockchain Coinvestors Swiss, who will introduce in future weeks, can provide detailed information regarding this investment option. Email us at mlemerle@fifthera.com to learn more.

LINQTO
'Private Investing Made Simple'

While our funds are only available to Accredited Investors who are also Qualified Clients we believe in the democratization of investment access to all investors and look forward to that day. In the interim, we have partnered with Linqto which is an easy to use Mobile and Web app that makes it exceptionally easy to invest into attractive opportunities. The provide access to Accredited not Qualified Client investors as well as much lower minimums. Go to Linqto.com or download the app from your App store to use this approach.

BLOCKCHAIN COINVESTORS ANGELLIST SYNDICATE

Continuing the theme of the democratization of investing, we have a rapidly growing Blockchain Coinvestors syndicate on AngelList providing access to selected coinvestments. Please join us and our partner Lou Kerner on AngelList.

REGISTER NOW FOR UPCOMING WEBINARS AND CALLS

Our investment team hosts bi-monthly webinars and calls to help educate our community about the Fifth Era, fintech, blockchain and crypto. We discuss important trends, tailwinds and investment themes including what we have learned and how we are using our knowledge to inform our own investment thesis and actions. Below is a list of upcoming webinars for which you can register by clicking the links: