03 / 31 / 21

Funds for private equity are flowing into cryptocurrencies

Funds for private equity are flowing into cryptocurrencies


Private equity investors are indeed the sharks always looking to hunt the best projects with the highest and exponential RoI. Fortunately, cryptocurrencies and their related startups happen to be the best niche for them since both goals can be satisfied (i.e. long term stable income and immediate high bursts of cash flow).

Just to give you a market insight for 2019 (as several predictions were made for that year in regards to investments into crypto startups), please note that blockchain and crypto-related businesses raised approximately $4.5B. Moreover, the ICO sales were also 80% more than in 2018, which is a healthy indicator that the money is flowing into cryptocurrencies at a very decent pace.

The reason why the appetite of traditional investors has grown dramatically is because of the IEO model that became functional in 2019 and allows people to invest their money in budding startups and earn shares as a reward. While the difference between ICO and IEO is quite shady for a layman, here are some of the notable factors that attract big investors:

  • The tokens have instant liquidity
  • The tokens are directly sold by an exchange, rather than a team, thus increasing the trust factor as well
  • Since the tokens are sold by the exchange, the fraud risks are minimized due to the compliance requirements imposed on them (i.e. KYC)

However, there are still several barriers for venture capitalists, including (but not limited to) uncertainty around the regulations, no rights to possession, and a higher mortality rate.

Therefore, since the crypto market is quite lucrative and the VCs know it, they are finding alternatives to get into the industry. Please note that crypto projects that raise funding are not essentially companies yet and they are just applications that aim to connect users with a blockchain network, thus rendering them as application layer products for the end-user, particularly the investors. As a result of this, investors are now more eager to get in-depth exposure to the application in order to determine the true value of the platform they are investing in.

It is worth mentioning that Red Had 2.0 businesses are springing in the industry for the last 2-3 years, particularly after 2017’s bull run and the entrepreneurs also feel quite comfortable investing in such startups due to a significantly low level of complexity.

Basically, under the Red Hat 2.0 model, crypto assets are issued by a company registered in a crypto-friendly jurisdiction to make compliance easier. However, since they have a complex structure and are situated in another jurisdiction as well, investors are not comfortable in making an investment. In order to address this issue, these startups now create an operating company in their home country and the purpose of this company is to contribute to the code of the project, which is open source. Since the structure of this company is much simpler, entrepreneurs prefer investing in such companies directly.



Leave a Reply

Your email address will not be published. Required fields are marked *