Fintech has been changing the global investment environment for several years, with new technologies such as cryptocurrencies and blockchain creating new and different opportunities for investors around the world. Venture capital funding, historically a localised investment, is entering onto a global platform, bringing new funding opportunities for start-ups everywhere.
As director of a London-based fintech company, Matthew Ledvina works with international clients through a secured lending platform, including private banks, brokers, funds and family offices. Matthew Ledvina also works with fintech and regtech investments on an international basis, with a strong focus on venture capital for technology.
Initial coin offerings (ICOs) are now creating new and exciting opportunities for venture capitalists to get involved in funding international projects at the earliest stages.
Initial Coin Offerings
Initial coin offerings create funding and development opportunities that were previously unavailable at the early start-up phase of a company. Start-ups can now use ICOs to raise large amounts of money at any developmental stage, bringing with them the opportunity to attract investors from the farthest reaches of the globe.
Geographical location is no longer an issue when it comes to venture capital, as investors from anywhere can get involved simply by having access to cryptocurrencies. As a global coin offering using blockchain technology, ICOs open up the market and break down some of the barriers associated with traditional venture capital investment.
ICOs began life as a niche route to funding for tech entrepreneurs, essentially providing a crowdfunding platform where anyone can buy coins to get the token. The theory behind ICOs is that these tokens become more valuable as the ventures achieve more success.
Increased Regulatory Scrutiny
The popularity of ICOs as an investment vehicle for venture capitalists can be seen clearly in the figures. In 2018, more than US$20 billion was raised globally in token sales, according to data collected by Coinschedule. This is nearly three times the $6.5 billion raised the previous year. A large part of this investment total was only offered to private investors such as venture capitalists, along with high net worth individuals and family offices, without ever going public. Increased regulatory scrutiny has made placement with venture capitalists and other accredited investors far more attractive. Institutional participation has also increased ten-fold since before 2014, with over 900 crypto funds now available.
Cryptocurrency and Blockchain Investments
Venture capital deals with a focus on cryptocurrency and blockchain reached almost $3.9 billion to the end of the third quarter of 2018. This represents an increase in total investment value of 280% compared to all four quarters of 2017. The average size of investment in cryptocurrency and blockchain has also risen dramatically, with a 2018 year-on-year increase of over $1 million.
There does remain an air of uncertainty due to the largely unregulated environment and the historically volatile nature of cryptocurrencies. However, ICOs are certainly no longer the domain of early adopters and people in the cryptocurrency industry. Traditional venture capitalists and more mainstream early adopters are entering the arena and investing in tokens and investment funds with ICOs in the portfolio.
Matthew Ledvina is a US taxation expert with a professional history as a consultant and US tax advisor. He currently works with a venture capital firm alongside his director role at a London fintech company.
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