Recommended Use Case: Silicon Valley VC Explains The Tokenization Of Venture Capital And Role Of Cryptocurrency
(forbes.com)
Venture Capitalist, Keith Teare
Venture capitalist and serial entrepreneur, Keith Teare, is known for creating EasyNet, Europe’s first Internet Service provider, and CYBERIA, the world’s first Internet cafe. Teare was also a founding shareholder of TechCrunch, which sold to AOL in 2010.
Teare is now about to announce his latest initiative, Venture Network, which aims to provide liquidity to the global venture capital ecosystem, which is known to be a notoriously illiquid asset class. Venture Network achieves liquidity for founders and investors via three entities working as partners. First, the company issues reward tokens to founders and investors in startups.
This entity will conduct a token sale of 300 billion venture tokens and endow a fund - the Venture Network Fund - with the proceeds. Finally, the fund will make 80% of the assets it invests in available to its token holders on a marketplace.
Teare plans to launch this new venture in the heart of Silicon Valley, aiming to address the inherent lack of liquidity and risk diversification in startup investing, while making access to the best deals available to a far wider audience.
I sat down with Teare to ask him about the similarities and differences between venture capital and cryptocurrency investing.
Rachel Wolfson: Tell me about the difficulties investors face with liquidity and startup investing. What are the downsides?
Keith Teare: Liquidity is the ability to turn an asset into cash. Stocks, for example, are very liquid if publicly listed. But private company stocks are highly illiquid. If you are a startup founder or a venture investor it is unlikely you can turn your stocks into cash for many years.
This has many consequences. It means investors, especially angels, are unable to make new investments until their old ones are sold or do a public offering. This limits the capital available to new startups.
If you are a founder, it means that you are heavily dependent on an exit for your company, so your ability to make sound decisions is always under pressure from your need for liquidity.
Wolfson: Investors like tokens because they behave similar to securities. With cryptocurrency your investment is liquid, however. What trends are you seeing in the last years until now in venture capital?
Teare: Venture has never really systemically recovered from the 1999-2000 crash associated with the end of the Internet bubble. Since then, it has been hard for startup founders to raise the kind of capital required to execute big long-term ideas.
Most investors are focused on a company's “traction” because unless they invest in companies with product-market fit and proven growth, they risk having to wait longer for liquidity, or worse still, losing their money. This short-term thinking pervades venture investing and means that innovation has slowed down.
A second consequence is that large companies like FaceBook, Google, Amazon, Apple and others can acquire companies cheaply as investors seek exits. Acquihires are a modern form of this.
Wolfson: How many hedge funds have been founded on Crypto versus how many traditional firms want in? Is it too late?
Teare: There are well over 250 crypto hedge funds. Most VCs cannot invest in token offerings. It is not too late, but the VC cycle lasts over 10 years, so it is slow to change.
Wolfson: Those firms hold crypto assets — most of which is in Ethereum — in order to invest and divest in company tokens and cryptocurrencies as part of ICOs or just generally as retail investors do. How can Venture Network streamline this process?
Teare: Venture Network is a very different animal to both traditional venture firms and to crypto funds. I often start talks saying, “this is not a crypto fund, its bigger than that”. What we are attempting is the creation of a universal currency that can be used to bring liquidity to any illiquid asset. The fund will invest in token sales and equities.
The marketplace can list any type of asset. If token holders want to trade for that asset, it will be possible.
Venture Network is planning to create a rewards-based liquidity token for the entire global venture asset class. In partnership with various authorities, we will provide rewards tokens (called Venture Token) to every global funding event. Each founder that raises capital will be offered 1 token per $1 raised.
Each investor will also be offered 1 token for each $1 invested. The authoritative body that tells Venture Network about the funding event will get 1 token per $20 invested.Over 10 years, there can be as much as $1.5 trillion in venture funding, and so over 3 Trillion Venture Tokens will be rewarded potentially.
Venture Tokens are intended to become as liquid as cash and a primary store of value and means of exchange for the entire global venture ecosystem.
Wolfson: What are your thoughts on the SEC ruling that Ethereum isn't a security? Will this affect crypto investing?
Teare: The SEC seems to be taking a step by step approach to understanding blockchain, cryptocurrencies and token sales. The statement that Ethereum is not a security, like Bitcoin, makes sense.
These are foundational tokens with no corporate owner. Of course, individuals and foundations own some of the tokens and can prosper as a result of writing the software. But these are clearly nothing like securities. In the future, DAOs (digital autonomous organizations) will be very similar.
There may be no corporate parent at all. Now, the SEC needs to grapple with all of the other types of tokens in a manner similar to the Swiss government, where there are security tokens.
Wolfson: Why does Venture Network have a huge opportunity now and why do investors need to act now?
Teare: Nobody has ever been able to build a sizable venture fund without having to rely on a small number of very wealthy investors. This will be the first major fund where there are no limited partners. It means the fund can invest freely in the things it believes in, and it also means that when returns are produced, they can be re-invested in more growth.
By combining a fund with a liquidity platform (the rewards and the marketplace), we will have truly changed the nature of venture investing - both who the investors are, and who is rewarded.
Wolfson: Are you bullish on Bitcoin?
Teare: Bitcoin represents our digital future. It is growing at a time when the Internet and smartphones have created the first truly global networking and device platforms.
Now we have a global transaction and rewards platform. At a time in history when the US Dollar is likely to decline - due to the rise of Asia and the relative weakening of the USA - a global, digital, universal equivalent, store of value seems inevitable and welcome.
I do not see Bitcoin as the only player, as there will be many. But it is the most valuable, most significant and most able to be the universal equivalent to all other digital currencies.
You can follow Rachel Wolfson on Twitter and LinkedIn to stay up to date on the latest cryptocurrency happenings.
Venture capitalist and serial entrepreneur, Keith Teare, is known for creating EasyNet, Europe’s first Internet Service provider, and CYBERIA, the world’s first Internet cafe. Teare was also a founding shareholder of TechCrunch, which sold to AOL in 2010.
Teare is now about to announce his latest initiative, Venture Network, which aims to provide liquidity to the global venture capital ecosystem, which is known to be a notoriously illiquid asset class. Venture Network achieves liquidity for founders and investors via three entities working as partners. First, the company issues reward tokens to founders and investors in startups.
This entity will conduct a token sale of 300 billion venture tokens and endow a fund - the Venture Network Fund - with the proceeds. Finally, the fund will make 80% of the assets it invests in available to its token holders on a marketplace.
Teare plans to launch this new venture in the heart of Silicon Valley, aiming to address the inherent lack of liquidity and risk diversification in startup investing, while making access to the best deals available to a far wider audience.
I sat down with Teare to ask him about the similarities and differences between venture capital and cryptocurrency investing.
Rachel Wolfson: Tell me about the difficulties investors face with liquidity and startup investing. What are the downsides?
Keith Teare: Liquidity is the ability to turn an asset into cash. Stocks, for example, are very liquid if publicly listed. But private company stocks are highly illiquid. If you are a startup founder or a venture investor it is unlikely you can turn your stocks into cash for many years.
This has many consequences. It means investors, especially angels, are unable to make new investments until their old ones are sold or do a public offering. This limits the capital available to new startups.
If you are a founder, it means that you are heavily dependent on an exit for your company, so your ability to make sound decisions is always under pressure from your need for liquidity.
Wolfson: Investors like tokens because they behave similar to securities. With cryptocurrency your investment is liquid, however. What trends are you seeing in the last years until now in venture capital?
Teare: Venture has never really systemically recovered from the 1999-2000 crash associated with the end of the Internet bubble. Since then, it has been hard for startup founders to raise the kind of capital required to execute big long-term ideas.
Most investors are focused on a company's “traction” because unless they invest in companies with product-market fit and proven growth, they risk having to wait longer for liquidity, or worse still, losing their money. This short-term thinking pervades venture investing and means that innovation has slowed down.
A second consequence is that large companies like FaceBook, Google, Amazon, Apple and others can acquire companies cheaply as investors seek exits. Acquihires are a modern form of this.
Wolfson: How many hedge funds have been founded on Crypto versus how many traditional firms want in? Is it too late?
Teare: There are well over 250 crypto hedge funds. Most VCs cannot invest in token offerings. It is not too late, but the VC cycle lasts over 10 years, so it is slow to change.
Wolfson: Those firms hold crypto assets — most of which is in Ethereum — in order to invest and divest in company tokens and cryptocurrencies as part of ICOs or just generally as retail investors do. How can Venture Network streamline this process?
Teare: Venture Network is a very different animal to both traditional venture firms and to crypto funds. I often start talks saying, “this is not a crypto fund, its bigger than that”. What we are attempting is the creation of a universal currency that can be used to bring liquidity to any illiquid asset. The fund will invest in token sales and equities.
The marketplace can list any type of asset. If token holders want to trade for that asset, it will be possible.
Venture Network is planning to create a rewards-based liquidity token for the entire global venture asset class. In partnership with various authorities, we will provide rewards tokens (called Venture Token) to every global funding event. Each founder that raises capital will be offered 1 token per $1 raised.
Each investor will also be offered 1 token for each $1 invested. The authoritative body that tells Venture Network about the funding event will get 1 token per $20 invested.Over 10 years, there can be as much as $1.5 trillion in venture funding, and so over 3 Trillion Venture Tokens will be rewarded potentially.
Venture Tokens are intended to become as liquid as cash and a primary store of value and means of exchange for the entire global venture ecosystem.
Wolfson: What are your thoughts on the SEC ruling that Ethereum isn't a security? Will this affect crypto investing?
Teare: The SEC seems to be taking a step by step approach to understanding blockchain, cryptocurrencies and token sales. The statement that Ethereum is not a security, like Bitcoin, makes sense.
These are foundational tokens with no corporate owner. Of course, individuals and foundations own some of the tokens and can prosper as a result of writing the software. But these are clearly nothing like securities. In the future, DAOs (digital autonomous organizations) will be very similar.
There may be no corporate parent at all. Now, the SEC needs to grapple with all of the other types of tokens in a manner similar to the Swiss government, where there are security tokens.
Wolfson: Why does Venture Network have a huge opportunity now and why do investors need to act now?
Teare: Nobody has ever been able to build a sizable venture fund without having to rely on a small number of very wealthy investors. This will be the first major fund where there are no limited partners. It means the fund can invest freely in the things it believes in, and it also means that when returns are produced, they can be re-invested in more growth.
By combining a fund with a liquidity platform (the rewards and the marketplace), we will have truly changed the nature of venture investing - both who the investors are, and who is rewarded.
Wolfson: Are you bullish on Bitcoin?
Teare: Bitcoin represents our digital future. It is growing at a time when the Internet and smartphones have created the first truly global networking and device platforms.
Now we have a global transaction and rewards platform. At a time in history when the US Dollar is likely to decline - due to the rise of Asia and the relative weakening of the USA - a global, digital, universal equivalent, store of value seems inevitable and welcome.
I do not see Bitcoin as the only player, as there will be many. But it is the most valuable, most significant and most able to be the universal equivalent to all other digital currencies.
You can follow Rachel Wolfson on Twitter and LinkedIn to stay up to date on the latest cryptocurrency happenings.
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Francisco Gimeno - BC Analyst Venture funds are waking up to the huge opportunities offered by crypto to investors with a capital which can be reinvested in growth combined with a liquidity platform and changing what tradicional venture investing is, making it very attractive both to investors which see their investment returning and growing, and to those who benefit and are rewarded from the investment. This use case will be soon one of many which will be appearing once tradicional venture capital funds see the light.