8 BLOCKCHAIN INVESTMENT THEMES
Blockchain Coinvestors Newsletter
Vol. 5, No. 4, April 2023
8 BLOCKCHAIN INVESTMENT THEMES
If you'd like to learn more about Blockchain Coinvestors, just let us know. We're happy to set up a time to talk about our funds, our performance, and the future of blockchain technology.
8 INVESTMENT THEMES
In our last BLOCKCHAIN COINVESTORS NEWSLETTER - VOL. 5, NO. 3, MARCH 2023 we took a long term view and explored four possible futures for the global financial system by applying a tool called scenario planning.
We wrapped up the newsletter by asking a key question:
How do these possible futures impact our Blockchain Coinvestors Investment Strategies?
We concluded that the good news is we think our Blockchain Coinvestors Fund of Funds, including our Fund VII which is now accepting expressions of interest (email IR@blockchaincoinvestors.com to learn more), are straddled effectively across all futures:
Global not locally concentrated. Our funds are global with approximate allocations of 50% US, 25% Europe and 25% Asia. So regardless of which way the world shifts we expect we have capital in the right places.
Heavily diversified. Each of our funds backs a large number of venture funds and through them we get massive diversification - we are currently investors in more than 750 companies and projects and this is growing rapidly - probably more diversification than any one else has in early stage venture investing into the world of digital monies, commodities, assets, and blockchain based innovation.
Invested with the Best Investors. Our goal is to partner with the best early stage investors who are investing into our investment thesis and we think we are in a large number of them today.
Straddled across traditional and new disruptive players. This is an important one. We are investors in the disruptive companies like Coinbase, Uphold, and Yellow Card to name but three; we are ALSO investors in the infrastructure players that the traditional providers are utilizing such as Bitwise, Securitize, and SFOX to name just three again. So we are again straddled whether the winners are traditional or new players.
The one dimension that would impact us greatly is pro versus anti innovation regulation. If in the 1990's the US had banned the Internet (and many people including at the highest levels of government were arguing for this) then the American and global population would not have benefited so greatly over the past three decades.
This week we turn to the 8 investment themes that are being enabled by Blockchain technology, but in order to get there, we start in the past with the digitalization of communications and content.
THE DIGITALIZATION OF COMMUNICATIONS AND CONTENT
In our book Build your Fortune in the Fifth Era (available in hardback, paperback, audio, and ebook) we discussed how the Internet didn’t even exist 30 years ago, and now billions of people are connected to the web every day, and remarkable new technologies have been invented that have dramatically changed the way humans exist on our planet. We have all lived through the transition during which almost all of the world's communications and content were digitalized.
We take it for granted today, however, the changes were momentous and for investors they enabled the greatest valuation creation moment the world had ever seen.
While greatly simplified, the innovation that enabled the digitalization of communications and content was a technology stack which we call, by shorthand, the Internet. Of course, it is not ONE thing. It is a combination of many things, which, taken together, allow us to communicate and share content in easy, accessible, low cost, and fast ways that have brought enormous value to every one of the earth's 8 billion humans who have been exposed to the innovation. Those may sound like broad statements, but if you go back and look at the ease, breadth of access, cost, and speed of accessing information in the 1980's, the comparison is stark.
Take a brief look at the exhibit below and you will recognize many of the innovations that make up the Internet technology stack.
We all use them every day.
The Internet drove so much consumer benefit that it is hard to fathom today. Notwithstanding the simultaneous reality that it also left us with some complex issues that we are still working through including: roughly a third of the world still does not have the benefits of being online; we are societally thinking through some negative externalities including highly concentrated economic value; and the challenges that being always on can bring.
STOP THE INTERNET NOW
It is easy to forget, but as this powerful technology stack was being rolled out, there were powerful voices, including many at the highest levels of our elected governments, who were arguing that the Internet needed to be 'turned off now.'
The reasons were many, and there were legitimate concerns - copyright infringement, piracy and privacy, dark web usage, porn online, lack of sales tax for Internet e-commerce, and many others.
Just to refresh your memory on one particular strand - as recently as 2012 protests were required to thwart the potential implementation of two proposed laws in the United States Congress: the Stop Online Piracy Act (SOPA) and the PROTECT IP Act (PIPA). Many of us were concerned then that errant legislation might not only throw away all the clear consumer benefits of digital communications and content, but also that fundamental rights like freedom of speech might be threatened.
Fortunately, level heads won out and we continued to move forward with pro innovation regulation.
Should we assume that this time will be the same?
THE DIGITALIZATION OF COMMERCE
We created Blockchain Coinvestors because we are absolutely convinced that the move towards a global digital economy is incomplete.
Our investment thesis is laid out in the exhibit below, and you can also watch the webinar Blockchain Coinvestors Investment Thesis to hear it in more detail.
For those of you who want to dig even deeper, our book Blockchain Competitive Advantage (available in hardback, paperback, audio, and ebook) can help deepen your understanding as well as think through the implications whether you are an entrepreneur, corporate executive, or investor.
We also say a few words for the world's Government officials at the end which we hope they take a moment to read.
Which brings us to this Newsletter's central theme.
Just as we had a technology stack that enabled digital communications and content which we call the Internet.
So we have a technology stack that will enable digital monies, commodities, and assets.
We call that Blockchain.
8 INVESTMENT THEMES
The simplified technology stack for the digitalization of commerce is shown in the exhibit below. It should remind you of the Internet technology stack, because it is, in fact, conceptually very similar. Except instead of being an Internet of communication and information sharing, this time we are building an Internet of Value.
Our 8 principal investment themes drop out of this conceptual framework:
Foundational Layer
1. Protocols and open source software platforms based upon distributed ledger technology
2. Distributed cloud computing enabling the continuing migration from mainframe, to outsource mainframe to centralized distributed cloud to now decentralized, distributed cloud
3. Networks, registries, identity, and provenance tracking solutions that solve the challenges of today's Internet to ensure it is fit for purpose as an Internet of Value
Transactional Layer
4. The digitalization of Institutional infrastructure created to support today's monies, commodities, and assets in today's antiquated and often paper based financial system
5. The digitalization of the Retail infrastructure created to support today's monies, commodities, and assets used in non institutional customers hands
6. Peer-to-peer markets (in blockchain circles known as DeFi) which seek to digitalize and fundamentally transform the global financial system including taking out the deadweight loss of unnecessary intermediaries (not that all intermediaries are unnecessary, but many are)
Application Layer
7. B2C applications of distributed ledger technology with a particular emphasis on the digitalization of all the world's assets - 'proof of ownership' with the consequent digitalization of buy, hold, sell
8. B2B applications of distributed ledger technology to make the world's enterprise services and infrastructure ready for a digital economy
The blockchain companies we back - 750+ and growing fast - all share an interest in some aspect of this technology stack and the innovation that it enables. Of course, many of them operate in more than one of the 8 investment themes, but the exhibit below plots a few of them by their centers of gravity.
It is a tremendously exciting time, just as it was when the Internet was first stood up and began to get traction.
Once again we expect it to be the greatest value creation event the world has ever seen.
This time because we are digitalizing the world's largest and most valuable of all horizontals: Commerce itself.
PAST IS PROLOGUE
Have we seen this before? Not exactly, but as investors we have been given a playbook from the 90's and 00's which we think is highly relevant this time around.
We like very much the final chart we are including in this Newsletter. It is a modestly edited version of a page that Dan, Paul, and their team at Pantera Capital shared recently.
Like Pantera, which is one of the funds in our own fund of funds, we think we have seen this before, and it is about 2001 again.
The world is in chaos, the disruption of the new innovations is real, and many want to put the innovation genie back in the bottle, but it is too late.
'Digital monies, commodities, and assets are inevitable and all of the world’s financial infrastructure must be upgraded'
Thank you for reading.
The Blockchain Coinvestors Partners
ABOUT BLOCKCHAIN COINVESTORS
Launched in 2014, our vision is that digital monies, commodities and assets are inevitable and all of the world’s financial infrastructure must be upgraded. Our mission is to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and projects. Our investment strategy is now in its 9th year and has to date invested in more than 40 pure play blockchain venture funds in the Americas, Asia and Europe; and in a combined portfolio of 750+ blockchain companies and projects including approximately 55% of all blockchain unicorns. Our funds rank in the top decile amongst all funds in their respective categories on both Pitchbook and Preqin. Headquartered in San Francisco with a presence in Grand Cayman, London, New York, Zug and Zurich, the alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle.
FUND PERFORMANCE
The Blockchain Coinvestors Fund of Funds strategy was created to provide diverse coverage of the best blockchain pure play venture funds in the Americas, Asia, and Europe. Blockchain Coinvestors Funds I and II have already experienced significant appreciation. Almost all of our fund investments are performing as top quartile against the Cambridge Associates Venture Benchmark. Fund I Net TVPI is 4.55x with an IRR of 59.8% and is one of the highest performing fund of funds in the world according to Pitchbook and Preqin. Fund II shows equally impressive early results with Net TVPI of 1.39x and an IRR of 30.9%. Fund III closed at the end of 2022 and will begin reporting this year. Our newest fund of funds - Fund VII - is now in formation. Email us at ir@blockchaincoinvestors.com to learn more.
BLOCKCHAIN COINVESTORS CURRENT OPPORTUNITIES
Our funds provide investors with global, diversified exposure to early stage investing into the blockchain space. Our Fund of Funds allows an investor to make a single investment to access global, diversified exposure to leading early stage blockchain venture investments on an institutional platform, while our direct funds provide concentrated early stage exposure. We also provide regular coinvestment opportunities to our investors.
Funds are available to accredited investors, with minimums of $250,000 or more at the discretion of our managers.
Explore our funds below or contact our Capital Formation team directly at IR@blockchaincoinvestors.com if you are ready to start investing.
Blockchain Coinvestors Fund VII (Fund of Funds). Our fund of funds strategy provides diversified coverage of the best blockchain pure play venture funds in the Americas, Asia, and Europe. Almost all of our fund investments are performing as top quartile against the Cambridge Associates Venture Benchmark. Our newest fund of funds - Fund VII - is now in formation and currently taking indications of interest.
Blockchain Coinvestors Fund IV (Early Stage Token) accesses early stage tokenized projects in their formation and seed stages through our relationships with other leading blockchain investors. We leverage asymmetrical information from our 40+ VC Funds to pick the most attractive opportunities.
Blockchain Coinvestors Fund VI (Mid Stage Growth) provides direct exposure to the emerging category leaders in the blockchain and crypto ecosystem. The Fund assesses the more than 400 blockchain and crypto projects in which we are already investors and employs a robust investment framework to select investment opportunities in their mid stage rounds - typically Series A, B, C.
Coinvestments. Our coinvestment program offers our investor community the opportunity to increase their exposure to emerging category leaders in the blockchain space. Please let us know if you want to learn which coinvestments are currently open for funding.
Contact ir@blockchaincoinvestors.com to learn more about any of these opportunities.
INTERESTED IN MORE? REGISTER NOW FOR UPCOMING WEBINARS AND CALLS
Our investment team hosts regular 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 our upcoming webinars for which you can register.
Blockchain Coinvestors Performance Update
The Blockchain Coinvestors team goes through the Funds' most recent performance.
Digital Monies and Assets Adoption
As digitalization of monies, commodities, and assets continues to develop in the future, a variety of sectors will find ways to utilize these new methods for their internal and external communities. Mitch Mechigian will discuss what this will look like as blockchain technology advances in the coming years.
Recordings of past webinars and calls can be found at www.blockchaincoinvestors.com/webinars.
UPCOMING APPEARANCES
Our team speaks regularly at conferences and seminars around the world. Please join us at any of our upcoming appearances to take deep dives into the most innovative technologies of our time.
Matthew Le Merle discusses the future of FinTech after the crash of FTX.
Digital Asset Week brings together some of the brightest minds in the space. Join our team as we provide our experienced insights of what is happening now and in the years to come.
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@blockchaincoinvestors.com to learn more.
RECENT PRESS
CNBC Crypto World: Matthew Le Merle discusses this year’s performance in the space and provides an outlook for 2023
Business Insider: A profile of the firm's investment strategy and why now is the right time to invest in blockchain technology
The Holy Grail of Finance: A podcast with Altvia regarding the inevitability of blockchain technology in conducting digital commerce
Boardroom Governance: Alison Davis gives her unique view on 20+ years of experience in management, investing, and board membership
CoinDesk TV: Interview on unicorns and predictions for 2022
Nasdaq Trade Talks: Discussion on the blockchain unicorn universe research and how to gain exposure
Ashurst: On the ESG Podcast, a discussion of the internet, fintech, blockchain, and individual revolution
Business Insider: Discussing how right now in blockchain is similar to the internet boom of the '90s in terms of growth and innovation
NBC San Francisco: An interview on what are NFTs
Crypto Unstacked: Podcast on the Fifth Era and the evolution of digital assets