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Investments in Blockchain August 2019
Author: Joel John
Head of Research: Lawrence-Lundy-Bryan
Executive summary
● $23.7 Billion Raised By 3738 Blockchain Companies Since 2013
A total of $23.7 billion has been invested into blockchain startups in multiple financing forms including ICOs, debt,
direct investments and crowd-funding since 2013. However, discounting a handful of exchanges and wallets, there
hasn’t been a break-out or viral application, yet. This definately isn’t for lack of capital. The challenge is more about
expertise and guidance at early stages, especially when it comes to areas unique to Web3 such as token design.
● Early Stage Fundraising High In Count, But Follow On Rounds Few And Scarce
In 2019, frequency of blockchain investments will be up nine times in comparison to 2013. The number of early stage
backers has increased substantially due to the massive returns from early investments in Bitcoin and Ethereum.
However, the excess early financing has not converted to follow on-rounds. This suggests that while early stage
funding is relatively easy, many traditional VCs are waiting for evidence of product-market fit and clearer signs of
revenue before making investments.
● 75% of All Deal Flow Focused Only On Early Stage Rounds
Pre-seed, Seed and Angel rounds account for ~75% of all deals in the ecosystem. However, in comparison to the
total figures raised by blockchain startups, early stage rounds are woefully small in size. Average seed stage rounds
for blockchain firms are slightly above ~$1 million. Higher than other ecosystems. But woefully lower than series A
rounds at $10 million. This has created an environment in which early stage startups are either over capitalised
without product market fit or competing directly with firms with 10x more capital.
● Bitcoin’s network effects and early
mover advantage meant most teams
focusing on the space early on were
building specifically for it.
● There is a shift from focusing purely
on cryptocurrency to convergence
applications when considering team
focus areas between 2013 to 2019. AI
leads the pack, but data and
ownership are not far behind.
AI and FinTech Emerge As
Key Focus Areas
Note : Sample size of 737 companies without focus on Bitcoin, Cryptocurrencies
Source: Crunchbase
● The number of funding rounds, at
seed stages has increased drastically.
Providing much needed early stage
financing.
● However, follow on rounds are rare.
Indicating that while capital is cheap,
companies are struggling to find
product-market fit.
2019 will see nine times
more blockchain deals
than 2013
Note : Deals include ICOs, Debt, PE and Grants
Source: Crunchbase
Early stage financing is a
competitive business
● The high frequency of early stage
financing could indicate seed stage
rounds closing quicker.
● This in turn could lead to a lack of
much needed value added services
investors could bring on board.
● Startups struggle with discovery,
corporate collaboration and industry
experience.
● The blockchain ecosystem has too
many dollars chasing too few startups,
which in turn solve for very niche
problems.
Source: Crunchbase
● 2018 witnessed roughly 130 times
the funding 2013 had. And yet, in
terms of a user-base, the ecosystem
has not produced a similar growth
pattern.
● Challenges with user experience,
infrastructure, regulations and
building custom tools for web 3.0
hinder the pace at which startups can
grow.
● Building for blockchains is currently
akin to driving a ferrari with no GPS.
The fuel eventually runs out, even if
the ride was enjoyable. Mentorship
and guidance can redirect talent to
solving the right problems
Note : Figure varies from a range of $6 billion to $24 billion
depending on source.
Easy Capital Does Not
Warrant Ecosystem Success
Note : Deals include ICOs, Debt, PE and Grants
Source: Crunchbase
Early stage financing
in the form of seed,
angel and pre-seed
backing constitute of
75% of all deals in the
ecosystem today.
● The average seed stage firm building
for blockchains raises $1.18 million.
But there is a major difference
between pre-seed and Series A. Seed
is ~30x the amount pre-seed raises.
And Series A is 10x the amount seed
stage rounds are
● These incremental leaps are an
indication of the extent to which
investors expect a startup to grow
before they are open to doing follow
on rounds
…Evolving is hard business.
And seed stage raises are
quite healthy in size
Source : Crunchbase
Series A is the ultimate
chasm to cross
● In spite of 75% of all deals
being done at the early stages,
it is only at Series A that serious
capital is introduced. Series A
constitutes of only 12.8% of all
funding rounds but attracts over
33% of all capital financing
available.
● In other words, while early
stage financing is in abundance,
lack of expertise and product
market fit could mean fewer
companies go on to raise larger
series A rounds. Coinbase and
Circle, both exchanges are the
only players to see a Series E
Source : Crunchbase
Deal frequency is still
dependent on Bitcoin
pricing
● Token returns determine investor
appetite for backing blockchain
companies. There’s a reason why
the ICO boom happened
along-side Bitcoin’s 20x rise in
2017.
● A drastic decline in Bitcoin’s price
could correlate with a dip in
investor appetite for financing early
stage, low-revenue blockchain
firms.
● Funding Is Cyclical. This adds to
the uncertainties equity based
token startups have.
Source : Crunchbase, Investing.com
● Too much capital at early stages
Contrary to popular belief, the blockchain ecosystem’s early stage financing ecosystem is quite healthy in terms of financing.
Firms that survive to see raise an average of $1.18 million, a figure that is in sync with web 2.0 peers.
● Chasing companies that are ill-prepared for follow on rounds
However, this frequency does not convert meaningfully to larger number of follow on-rounds. The mortality rate of blockchain
companies are high due to challenges stemming from regulations, a lack of traction and access to investors that fund firms post
series B
● With misaligned incentives
The after effects of the ICO mania is becoming increasingly evident as startups struggle to optimally allocate capital raised or
fine-tune themselves for growth. Easy capital with no expertise and quick returns add to the pressure founders have to optimise
their companies for vanity metrics instead of focusing on long term growth.
● And a lack of market expertise
The high number of rounds at early stages would mean institutional investors stick to investing increasingly on later stage firms
with proven traction and product market fit. This leaves teams with the potential to be unicorns at the mercy of a handful of early
stage financiers who bring nothing more than a cheque to the table.
What’s going on?
Where you are
headquartered matters
● The United States has more
funded blockchain companies
than the next 3 countries
combined together.
● Investor appetite varies from
region to region. Making free
and fair competition impossible
for what is fundamentally a
global innovation
Note : Data specific to early stage financing for blockchain companies
between 2017 and 2019. Source : Crunchbase
But cities are beginning
to change the trend
● When analysing at the city level -
it becomes clear that Fintech
hubs are a favourite for
blockchain companies.
● San Francisco leads globally, but
London trails closely. Regulatory
changes may tip the scale in
London’s favor.
● Sandboxes set up in London and
Singapore make them attractive
for startups in Europe and
South-East Asia to raise from.
Note : Data specific to early stage financing for blockchain companies
between 2017 and 2019. Source : Crunchbase
London emerging as a
hub for seed raises
● London has evolved to be a hub
for early stage companies looking
to raise seed stage rounds but the
trend of few companies going on
to raise Series A’s and B’s hold in
the city.
● Only a fraction of companies in
the region chose to go with ICOs
in comparison to seed stage
raises, indicating founder
preference to raise institutional
capital early on.
● Roughly $1 billion has been raised
by companies in the region since
2013.
● Fundraising is cyclical
Founders are dependent on Bitcoin’s price to raise capital for what may not necessarily be a token dependent
project. The heavy exposure of institutional players in the ecosystem to token prices swing risk appetites on basis of
how tokens perform. This means heavy competition to raise from a handful of backers during bear markets, and
heavy competition against a number of other equally well-funded projects during bull markets. Expertise and value
added services are the only key differentiators that teams can rely upon
● Not all capital brings expertise
The heavy competition in early stage financing for blockchain-based startups could mean a large number of investors
bring nothing more than capital. Investments in equity are considered a hedge against liquid tokens. In addition to a
lack of much needed guidance during the early stages, this also brings along expectations of quick exits from
investors that are used to typically being in liquid assets like ICO tokens.
● Location matters
Founder access to a network in regions where funding activity is heavy determines the possibility of the company
going on to raise follow-on rounds. The United States leads globally when considered at a national level. Regional
FinTech hubs such as London are catching up with former favorites such as San Francisco.
3 key takeaways
Outlier Ventures research coincides with the launch of its first basecamp program to support the development and growth of
new technologies in the open data economy.
To apply to be part of the program: https://outlierventures.io/base-camp/
● 3 month accelerator program based in London
● £35k immediate funding for early stage projects
● Up to £200k total funding available per team
● Office space, legal, accounting and back-office support
● World-beating ecosystem of investment, enterprise and tech partners
Be part of the development and growth of new
technologies
Disclaimer
This document (the “Document”) has been prepared by Outlier Ventures Operations Limited (“Outlier Ventures”). Outlier Ventures Operations Ltd is registered in
England and Wales, company registration number 10722638. Outlier Ventures Operations Ltd is an appointed representative of Sapia Partners LLP (“Sapia”) which is
authorised and regulated by the Financial Conduct Authority (Firm Reference Number 550103).
No undertaking, warranty or other assurance is given, and none should be implied, as to, and no reliance should be placed on, the accuracy, completeness or fairness
of the information or opinions contained in this Document. The information contained in the Document is not subject to completion, alteration and verification nor
should it be assumed that the information in the Document will be updated. The information contained in the Document has not been verified by Sapia, Outlier
Ventures or any of its associates or affiliates.
The Document should not be considered a recommendation by Sapia, Outlier Ventures or any of its directors, officers, employees, agents or advisers in connection with
any purchase of or subscription for securities. Recipients should not construe the contents of this Document as legal, tax, regulatory, financial or accounting advice and
are urged to consult with their own advisers in relation to such matters. The information contained in the Document has been prepared purely for informational
purposes. In all cases persons should conduct their own
investigation and analysis of the data in the Document. The information contained in the Document has not been approved by the Financial Conduct Authority. This
Document does not constitute, or form part of, any offer of, or invitation to apply for, securities nor shall it, or the fact of its distribution, form the basis of or be relied
upon in connection with any contract or commitment to acquire any securities.
Any forecasts, opinions, estimates and projections contained in the Document constitute the judgement of Outlier Ventures and are provided for illustrative purposes
only. Such forecasts, opinions, estimates and projections involve known and unknown risks, uncertainties and other factors which may cause the actual results,
performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forecasts, opinions,
estimates and projections. Accordingly no warrant (express or implied) is or will be made or given in relation to, and (except in the case of wilful fraud) no responsibility
or liability is or will be accepted by Sapia, Outlier Ventures or any of its directors, officers, employees, agents or advisers in respect of, such forecasts, opinions,
estimates and projections or their achievement or reasonableness. Recipients of the Document must determine for themselves the reliance (if any) that they should
place on such forecasts, opinions, estimates and projections.
Information contained in the Document may not be distributed, published or reproduced in whole or in part or disclosed to any other person. The distribution of any
document provided at or in connection with the Document in jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose
possession any such documents may come should inform themselves about and observe any such restrictions.

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Blockchain Investments Surge in Early Rounds But Follow-Ons Remain Scarce

  • 1. Investments in Blockchain August 2019 Author: Joel John Head of Research: Lawrence-Lundy-Bryan
  • 2. Executive summary ● $23.7 Billion Raised By 3738 Blockchain Companies Since 2013 A total of $23.7 billion has been invested into blockchain startups in multiple financing forms including ICOs, debt, direct investments and crowd-funding since 2013. However, discounting a handful of exchanges and wallets, there hasn’t been a break-out or viral application, yet. This definately isn’t for lack of capital. The challenge is more about expertise and guidance at early stages, especially when it comes to areas unique to Web3 such as token design. ● Early Stage Fundraising High In Count, But Follow On Rounds Few And Scarce In 2019, frequency of blockchain investments will be up nine times in comparison to 2013. The number of early stage backers has increased substantially due to the massive returns from early investments in Bitcoin and Ethereum. However, the excess early financing has not converted to follow on-rounds. This suggests that while early stage funding is relatively easy, many traditional VCs are waiting for evidence of product-market fit and clearer signs of revenue before making investments. ● 75% of All Deal Flow Focused Only On Early Stage Rounds Pre-seed, Seed and Angel rounds account for ~75% of all deals in the ecosystem. However, in comparison to the total figures raised by blockchain startups, early stage rounds are woefully small in size. Average seed stage rounds for blockchain firms are slightly above ~$1 million. Higher than other ecosystems. But woefully lower than series A rounds at $10 million. This has created an environment in which early stage startups are either over capitalised without product market fit or competing directly with firms with 10x more capital.
  • 3. ● Bitcoin’s network effects and early mover advantage meant most teams focusing on the space early on were building specifically for it. ● There is a shift from focusing purely on cryptocurrency to convergence applications when considering team focus areas between 2013 to 2019. AI leads the pack, but data and ownership are not far behind. AI and FinTech Emerge As Key Focus Areas Note : Sample size of 737 companies without focus on Bitcoin, Cryptocurrencies Source: Crunchbase
  • 4. ● The number of funding rounds, at seed stages has increased drastically. Providing much needed early stage financing. ● However, follow on rounds are rare. Indicating that while capital is cheap, companies are struggling to find product-market fit. 2019 will see nine times more blockchain deals than 2013 Note : Deals include ICOs, Debt, PE and Grants Source: Crunchbase
  • 5. Early stage financing is a competitive business ● The high frequency of early stage financing could indicate seed stage rounds closing quicker. ● This in turn could lead to a lack of much needed value added services investors could bring on board. ● Startups struggle with discovery, corporate collaboration and industry experience. ● The blockchain ecosystem has too many dollars chasing too few startups, which in turn solve for very niche problems. Source: Crunchbase
  • 6. ● 2018 witnessed roughly 130 times the funding 2013 had. And yet, in terms of a user-base, the ecosystem has not produced a similar growth pattern. ● Challenges with user experience, infrastructure, regulations and building custom tools for web 3.0 hinder the pace at which startups can grow. ● Building for blockchains is currently akin to driving a ferrari with no GPS. The fuel eventually runs out, even if the ride was enjoyable. Mentorship and guidance can redirect talent to solving the right problems Note : Figure varies from a range of $6 billion to $24 billion depending on source. Easy Capital Does Not Warrant Ecosystem Success Note : Deals include ICOs, Debt, PE and Grants Source: Crunchbase
  • 7. Early stage financing in the form of seed, angel and pre-seed backing constitute of 75% of all deals in the ecosystem today.
  • 8. ● The average seed stage firm building for blockchains raises $1.18 million. But there is a major difference between pre-seed and Series A. Seed is ~30x the amount pre-seed raises. And Series A is 10x the amount seed stage rounds are ● These incremental leaps are an indication of the extent to which investors expect a startup to grow before they are open to doing follow on rounds …Evolving is hard business. And seed stage raises are quite healthy in size Source : Crunchbase
  • 9. Series A is the ultimate chasm to cross ● In spite of 75% of all deals being done at the early stages, it is only at Series A that serious capital is introduced. Series A constitutes of only 12.8% of all funding rounds but attracts over 33% of all capital financing available. ● In other words, while early stage financing is in abundance, lack of expertise and product market fit could mean fewer companies go on to raise larger series A rounds. Coinbase and Circle, both exchanges are the only players to see a Series E Source : Crunchbase
  • 10. Deal frequency is still dependent on Bitcoin pricing ● Token returns determine investor appetite for backing blockchain companies. There’s a reason why the ICO boom happened along-side Bitcoin’s 20x rise in 2017. ● A drastic decline in Bitcoin’s price could correlate with a dip in investor appetite for financing early stage, low-revenue blockchain firms. ● Funding Is Cyclical. This adds to the uncertainties equity based token startups have. Source : Crunchbase, Investing.com
  • 11. ● Too much capital at early stages Contrary to popular belief, the blockchain ecosystem’s early stage financing ecosystem is quite healthy in terms of financing. Firms that survive to see raise an average of $1.18 million, a figure that is in sync with web 2.0 peers. ● Chasing companies that are ill-prepared for follow on rounds However, this frequency does not convert meaningfully to larger number of follow on-rounds. The mortality rate of blockchain companies are high due to challenges stemming from regulations, a lack of traction and access to investors that fund firms post series B ● With misaligned incentives The after effects of the ICO mania is becoming increasingly evident as startups struggle to optimally allocate capital raised or fine-tune themselves for growth. Easy capital with no expertise and quick returns add to the pressure founders have to optimise their companies for vanity metrics instead of focusing on long term growth. ● And a lack of market expertise The high number of rounds at early stages would mean institutional investors stick to investing increasingly on later stage firms with proven traction and product market fit. This leaves teams with the potential to be unicorns at the mercy of a handful of early stage financiers who bring nothing more than a cheque to the table. What’s going on?
  • 12. Where you are headquartered matters ● The United States has more funded blockchain companies than the next 3 countries combined together. ● Investor appetite varies from region to region. Making free and fair competition impossible for what is fundamentally a global innovation Note : Data specific to early stage financing for blockchain companies between 2017 and 2019. Source : Crunchbase
  • 13. But cities are beginning to change the trend ● When analysing at the city level - it becomes clear that Fintech hubs are a favourite for blockchain companies. ● San Francisco leads globally, but London trails closely. Regulatory changes may tip the scale in London’s favor. ● Sandboxes set up in London and Singapore make them attractive for startups in Europe and South-East Asia to raise from. Note : Data specific to early stage financing for blockchain companies between 2017 and 2019. Source : Crunchbase
  • 14. London emerging as a hub for seed raises ● London has evolved to be a hub for early stage companies looking to raise seed stage rounds but the trend of few companies going on to raise Series A’s and B’s hold in the city. ● Only a fraction of companies in the region chose to go with ICOs in comparison to seed stage raises, indicating founder preference to raise institutional capital early on. ● Roughly $1 billion has been raised by companies in the region since 2013.
  • 15. ● Fundraising is cyclical Founders are dependent on Bitcoin’s price to raise capital for what may not necessarily be a token dependent project. The heavy exposure of institutional players in the ecosystem to token prices swing risk appetites on basis of how tokens perform. This means heavy competition to raise from a handful of backers during bear markets, and heavy competition against a number of other equally well-funded projects during bull markets. Expertise and value added services are the only key differentiators that teams can rely upon ● Not all capital brings expertise The heavy competition in early stage financing for blockchain-based startups could mean a large number of investors bring nothing more than capital. Investments in equity are considered a hedge against liquid tokens. In addition to a lack of much needed guidance during the early stages, this also brings along expectations of quick exits from investors that are used to typically being in liquid assets like ICO tokens. ● Location matters Founder access to a network in regions where funding activity is heavy determines the possibility of the company going on to raise follow-on rounds. The United States leads globally when considered at a national level. Regional FinTech hubs such as London are catching up with former favorites such as San Francisco. 3 key takeaways
  • 16. Outlier Ventures research coincides with the launch of its first basecamp program to support the development and growth of new technologies in the open data economy. To apply to be part of the program: https://outlierventures.io/base-camp/ ● 3 month accelerator program based in London ● £35k immediate funding for early stage projects ● Up to £200k total funding available per team ● Office space, legal, accounting and back-office support ● World-beating ecosystem of investment, enterprise and tech partners Be part of the development and growth of new technologies
  • 17. Disclaimer This document (the “Document”) has been prepared by Outlier Ventures Operations Limited (“Outlier Ventures”). Outlier Ventures Operations Ltd is registered in England and Wales, company registration number 10722638. Outlier Ventures Operations Ltd is an appointed representative of Sapia Partners LLP (“Sapia”) which is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 550103). No undertaking, warranty or other assurance is given, and none should be implied, as to, and no reliance should be placed on, the accuracy, completeness or fairness of the information or opinions contained in this Document. The information contained in the Document is not subject to completion, alteration and verification nor should it be assumed that the information in the Document will be updated. The information contained in the Document has not been verified by Sapia, Outlier Ventures or any of its associates or affiliates. The Document should not be considered a recommendation by Sapia, Outlier Ventures or any of its directors, officers, employees, agents or advisers in connection with any purchase of or subscription for securities. Recipients should not construe the contents of this Document as legal, tax, regulatory, financial or accounting advice and are urged to consult with their own advisers in relation to such matters. The information contained in the Document has been prepared purely for informational purposes. In all cases persons should conduct their own investigation and analysis of the data in the Document. The information contained in the Document has not been approved by the Financial Conduct Authority. This Document does not constitute, or form part of, any offer of, or invitation to apply for, securities nor shall it, or the fact of its distribution, form the basis of or be relied upon in connection with any contract or commitment to acquire any securities. Any forecasts, opinions, estimates and projections contained in the Document constitute the judgement of Outlier Ventures and are provided for illustrative purposes only. Such forecasts, opinions, estimates and projections involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forecasts, opinions, estimates and projections. Accordingly no warrant (express or implied) is or will be made or given in relation to, and (except in the case of wilful fraud) no responsibility or liability is or will be accepted by Sapia, Outlier Ventures or any of its directors, officers, employees, agents or advisers in respect of, such forecasts, opinions, estimates and projections or their achievement or reasonableness. Recipients of the Document must determine for themselves the reliance (if any) that they should place on such forecasts, opinions, estimates and projections. Information contained in the Document may not be distributed, published or reproduced in whole or in part or disclosed to any other person. The distribution of any document provided at or in connection with the Document in jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession any such documents may come should inform themselves about and observe any such restrictions.