Blockchain Capital LLC, which backs startups that use the technology best known for supporting bitcoin, plans to raise a new $50 million fund partly by issuing its own digital tokens, becoming the first venture fund to do so.
The San Francisco-based company seeks to raise a portion of its third blockchain fund through an initial coin offering, or ICO, of tokens and the larger part from traditional venture-capital investors who typically contribute a minimum, Managing Partner Brock Pierce, who is also chairman of the Bitcoin Foundation, said in an interview.
The ICO could take place “in the next month or two,” he said. The company will more fully describe the tokens, which are expected to trade on secondary markets, in an upcoming offering memorandum, which will be issued through TokenHub in about a month. The company is talking with several exchanges but hasn’t confirmed which it will go with.
Up to now, ICOs have been limited to startup entrepreneurs, who raised about $270 million last year from coin offerings and crowdfunding, according to blockchain researcher Smith & Crown. Their popularity isn’t surprising: Even small investors typically can afford a single coin. Buyers can trade them on secondary markets, instead of sticking around long term.
The blockchain is a shared, secured ledger of transactions, and its advantage is that it can’t be easily modified, so records can be trusted. The technology supports the digital currency bitcoin, which rose to a record high Friday, closing at $1,177.28.
“We think this is the future of venture capital,” Pierce said. “We’ll be the first in the world to do this. We want to democratize venture capital.”
With its first fund formed in 2013, Blockchain Capital has so far invested about $40 million in 42 startups. The company invests about $500,000 in each round on average, Pierce said.
Venture-capital firms’ investments in bitcoin and blockchain startups dropped 18 percent to 132 deals last year a from 2015 high of 161, according to CB Insights. Total funding grew 5 percent to $550 million in 2016, the researcher said.
Money raised through ICOs skyrocketed last year, and the offerings continue, even though not all projects supported by ICOs have been successful. Last year, a project called the DAO that had raised millions got hacked and lost some investor money.
“We think this is going to change the game, this is going to completely disrupt the VC industry,” Pierce said.