While many companies have invested huge amounts of money into blockchain and bitcoins, venture capital firms have gone in a slightly different direction. They invested primarily in tech companies that are involved in bitcoin and blockchain technologies, going around the “traditional” path of investing directly into digital currencies. However, the return on investment in companies such as Coinbase rather than directly investing in Bitcoin, Ethereum, Litecoin and many more may be not so profitable after all.
Coinbase is one of the largest and safest online exchanges for Bitcoin, Litecoin and Ethereum. The company has raised several rounds of investment from venture capital firms such as Andreessen Horowitz and IVP. Coinbase has previously “suffered” from outages when the price of Bitcoin skyrocketed to above $20,000 just three weeks ago. From a venture capital investment, however, there’s the question: What would have been better – to invest directly in bitcoin or to invest in a company that essentially creates wallets for the digital currency?
According to Travis Scher, an investment associate at the Digital Currency Group and as reported by Joshua Brustein from IOL:
“All the money that’s been put into Coinbase, etcetera, would have returned much better if it was put directly into bitcoin.”
The tricky relationship between venture capital companies and digital currencies stems from the fact that initial coin offerings are now an easy and relatively cheap way for entrepreneurs and businessmen to raise funds. VC firms were originally created to take a stake in an emerging, high-growth industry where startups thrive. The return on investment usually came from exits or IPOs. However, as the whole financial industry is changing, so are other sectors related to it.
The one thing that ICOs do not offer, however, is the industry knowledge and expertise that venture capital companies can offer to their investments. Also, the relationships that VCs create can be of substantial value to any emerging and promising startup.
What now venture capital companies are doing is “buy the rights to acquire tokens ahead of an ICO through novel legal agreements”, as reported by IOL.