Blockchain

Investment Trends
in Review

A data-driven deep dive on the evolution of the

blockchain landscape — and how VCs, token sales,
and consortia are shaping its future.
In 2008, at the height of the Great Recession, Bitcoin’s anonymous
creator(s) proposed a “peer-to-peer transfer of virtual cash that
would allow online payments to be sent directly from one party
to another without going through a financial institution.” One year
later, the first Bitcoin block was mined.

Fast-forward to today: the total market capitalization ofcrypto-

currencies hovers around $150B (with a single bitcoin trading
for upwards of $5,000), Walmart and Pfizer have completed
successful blockchain pilots in food safety and medicine tracking,
and initial coin offerings (ICOs) have exploded in popularity, closing
on $2B+ in funding in 2017 alone.

Politically, blockchain technology has fostered a renewed

examination of today’s highly centralized web, and reignited
conversations around currency and value, digital governance, and
the fundamental structures and rails of our modern internet.

But how did we get here?

This report will explore how various forces have shaped the current
blockchain landscape. Specifically, we’ll take a data-driven look at
venture, corporate, and initial coin offering investment trends,
and offer some insights into blockchain’s immediate future. (Note
that blockchain is the term we’ll use as a catch-all encompassing
this ecosystem.)

I
 Table of
Contents

1 Initial Coin Offerings

6 Venture & Equity Investment
Trends
17 Corporate Investment Trends
27 Looking Ahead

II
 Report Initial Coin Offerings
Initial coin offerings have raised more than $2B in 2017 YTD.

Highlights
More than 250 ICOs have taken place since January 2016,
with total ICO deals and funding increasing at a faster clip than
traditional equity deals and dollars.

ICOs look to remain the financing method of choice for

blockchain startups. On a quarterly basis, total funds raised by
ICOs surpassed total funds raised via traditional equity financing
for the first time in Q2’17. This trend shows no signs of slowing,
especially if regulatory measures prove favorable.

Over-capitalization is a continuing concern. Teams holding ICOs

might be receiving too much money too quickly. When compared
to traditional equity financing in the sector, ICOs raise well above
the historical average of $3M for early-stage (seed / angel and
Series A) blockchain deals.

Venture & Equity Investment

Mega-deals push equity funding up, but growth slows as ICOs
take hold. Traditional equity deals and funding could see their
highest annual totals ever, although the number of teams raising
via ICOs is increasing more quickly. At the current run rate, 2017
is on pace for 188 equity deals worth $830M+, up from 138 and
$545M in 2016. Mega-deals have substantially boosted this year’s
numbers, with R3’s $107M Series A and Coinbase’s $100M Series
D leading the pack.

More VC firms are investing in cryptocurrency hedge funds,

ICOs, and tokens directly. Brand-name investors placing bets on
top ICOs could signal institutional interest in this most recent wave
of blockchain innovation.

Corporate Investment
Corporate investment is set to rise in 2017. The number of unique
active corporate investors has hit a high of 91 in 2017 YTD, and
is closing in on the number of active venture capital investors
participating in equity financings.

Consortia continue aggressive vertical and geographic

expansion. Building on successful pilots and trials, consortia
have expanded to verticals well beyond financial services and
continue to bolster their ranks with geographically diverse mem-
bers. Although there have been a number of high-profile members
exiting consortia, successful trials and expanding member bases
could bode well for the future of blockchain consortia, which
are fundamentally tied to the quantity and quality of their
respective members.

III
 Initial Coin We define initial coin offerings as sales of tokens or coins
offered by blockchain companies looking to raise funds, typically
denominated in major “gateway coins” bitcoin and ethereum.
Offerings Tokens are subsequently traded on cryptocurrency exchanges, and
rise or fall in value nominally based on the company’s projected
product, consumer traction, and/or speculation.

Investors in ICOs hope to turn a profit by buying early access to

potentially foundational blockchain protocols and applications,
just as early investors into bitcoin and ethereum did. For reference,
a $100 investment into bitcoin on January 1, 2011 would now be
worth nearly $1.5M.

Indeed, ICOs appear to be locked in something of a feedback loop

“Political idealists project visions with major cryptocurrencies — most notably, bitcoin and ethereum.
of liberation and revolution onto it;
A run-up in cryptocurrency prices this year has created paper
establishment elites heap contempt
gains for investors, many of whom have looked to diversify into
and scorn on it. On the other
ICOs. More available capital has also contributed to an increasing
hand, technologists — nerds — are
number of blockchain entrepreneurs opting to raise funds via ICOs
transfixed by it. They see within it
as opposed to traditional equity financing, in turn fostering higher
enormous potential and spend their
demand for cryptocurrencies broadly, and so on.
nights and weekends tinkering with it.”
Since January 2016, Ethereum’s market capitalization has
– Marc Andreessen,
increased from $78M in January 2016 to near $30B today,
Andreessen Horowitz
while total ICOs are increasing at a faster rate than their
equity-backed counterparts.

Over 250 blockchain teams have completed ICOs since January

2016, with more than 55% of them raising during or after July
2017. Cumulatively (since January 2016), the number of ICOs
should surpass the number of equity deals in October 2017,
underscoring hype around the financing mechanism.

1
On a quarterly basis, total funding raised by ICOs surpassed
total funding raised via traditional equity financing for the first
time in Q2’17. This trend continued in Q3’17, with total equity
funding to blockchain companies staying more or less stagnant
quarter-over-quarter as their ICO counterparts grew 75% over the
same period.

Year-to-date, ICOs have closed more than $2B in funding, with

many ICOs still ongoing and hundreds more scheduled.

Teams holding ICOs are building decentralized blockchain

applications across verticals, ranging from asset management to
social networks to prediction markets.

The majority of funds have gone to core infrastructure and

development projects, such as Tezos ($230M raised in Q3’17)
and Bancor ($153M in Q2’17). Computing and storage
companies (themselves often considered key blockchain
infrastructure) also saw substantial investor interest, with notable
raises by Filecoin ($200M+ in Q3’17), SONM ($35M in Q2’17), and
Golem ($9M in Q4’16).

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Over-Capitalization
Importantly, teams holding ICOs are adamant that they do not
represent securities offerings — which would put them on the
wrong side of the law — and instead market their coins or tokens
as part of an entirely new asset class altogether.

For example, bitcoin is a token that provides ownership of a unit

of account on the Bitcoin ledger. It is impossible to participate in
the Bitcoin ledger without owning bitcoin; bitcoin is the network’s
exclusive means of exchange. In this sense, bitcoin isn’t a security,
but utility within a network.

In the same vein, companies justify large pre-product ICOs by argu-

ing that scarce tokens provide future utility within decentralized
networks. ICOs regularly raise upwards of $10M, with teams often
presenting a white paper in lieu of an investment memorandum,
product, or roadmap.

3
Token logic notwithstanding, many of these companies could run
the risk of mismanagement after receiving such large sums in
such a short time.

When compared to traditional venture financing in the sector,

ICOs raise well above the historical average of $3M for early-stage
(angel / seed, and Series A) blockchain deals.

In Q3’17, all tech angel and seed deals totaled $1.4B, while ICOs
totaled roughly $1.3B. In the same quarter, tech angel and seed
deals hit 1,600+, while the number of ICOs rose to about 150.

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5
Venture & Equity Venture investing has shifted over time, with VCs first backing
companies exploring bitcoin as currency, then focusing on private

Investment
blockchain providers catering to financial services and other
verticals, and today investing in the token economy.

Trends
Continuing roadblocks in the sector include cryptocurrency
price volatility, regulatory setbacks — such as New York’s 2015
BitLicense — and scaling issues.

VC Funding Trends
The recent boom in cryptocurrencies and ICOs has had a material
effect on the number of blockchain teams looking for financing,
with traditional equity deals on track to set a new record of 188 in
2017, up from 138 in 2016.

VC-backed deals specifically should grow at a similar rate, to a run-

rated 77 in 2017. Since 2012, over 650 equity deals to blockchain
companies have totaled more than $2.1B.

The growth rate for equity deals and VC-backed deals is slower
than the growth rate of ICOs. The highest annual growth for
total VC-backed deals came in 2014, when deals grew 180%
year-over-year.

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Taking a closer look at deal share by stage, traditional equity
investment to the sector seems to be maturing, with seed / angel
equity deals decreasing to 50% of the total in 2017 YTD, down
from 57% in 2016 and 72% in 2015. Meanwhile the proportion of
later-stage deals (Series D and later) this year is staying consistent
with 2016 figures.

At the same time, given that ICOs currently account for the vast
majority of blockchain seed deals, the sector is seeing a substan-
tial uptick in seed-stage companies that are not represented in
equity financing data.

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Notable later-stage equity deals in 2017 include Coinbase’s $100M
Series D, Blockchain’s $40M Series B (with participation from
Digital Currency Group, Google Ventures, Lightspeed Ventures, and
Mosaic Group, among others), and Bitfury’s $30M Series C, backed
by China Credit Limited Holdings.

The steady decline of early-stage equity deals may indicate that

blockchain, like other emerging technologies, is undergoing the
evolution from creation, to crowding, to consolidation.

However, according to CB Insights data, blockchain’s consolidation

may be tight, with blockchain companies failing at a higher rate
than tech startups in other areas. Of 103 blockchain companies
that received initial seed or angel funding in 2013 – 2014, only 28%
managed to raise additional funding, and just one company made
it to Series D: Japan-based cryptocurrency exchange, bitFlyer, with
a small $1.8M round.

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In comparison, of 1,098 tech companies we tracked that raised
seed rounds in the US in 2008 – 2010, 46% raised a second round
of funding. An additional 14% went on to raise a fourth round of
funding, versus blockchain’s 2%.

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VC Investor Trends
Looking at VCs and investments, the number of active VCs with at
least one blockchain investment in a given year has hit 95 in 2017
YTD, setting them on pace to hit 120 by the end of the year. This
suggests VCs are showing renewed interest in the sector, after
dropping steeply in 2016.

Digital Currency Group leads the list of top VCs by total blockchain
portfolio companies, making well over 100 investments to 75+
blockchain companies. This includes investments in 3 of the 5 most
well-funded companies in the space: Coinbase, Circle, and Ripple.

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Other blockchain companies on the most well-funded list are
Bitmain and Canaan, which focus on cryptocurrency mining, and
21 Inc. and BitFury, which have pivoted away from mining to offer
other services.

Cryptocurrency exchange Coinbase has received the most equity

funding in the sector, with over $200M in funding from a bevy of
brand-name investors.

Investments by Category
VC investment in blockchain can be loosely categorized
into 5 areas:

1. Investments in the recent wave of cryptocurrencies and ICOs,

most immediately via cryptocurrency hedge funds
2. Investments in companies directly correlated with bitcoin
speculation, such as exchanges, trading platforms, and
mining companies
3. Investments in companies exploring bitcoin as a currency,
primarily for peer-to-peer payments and remittance
4. Investments in farther-ranging blockchain use-cases, like media,
e-commerce, and identification
5. Investments in private blockchain firms building enterprise-
facing software.

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1. Cryptocurrencies & ICOs

Cryptocurrency returns have proven both difficult for VCs to

ignore and difficult to capitalize on, as typical venture investment
mandates require equity investments and the regulatory climate
around ICOs remains uneven.

As a result, brand-name VCs have invested into ICO cottage

industries, most prominently cryptocurrency hedge funds. Over 70
of these funds have sprung up since the start of 2017, many with
venture funds as investors.

Polychain Capital and MetaStable Capital are two such funds that
have received lots of attention from venture investors. MetaStable
has received investments from Sequoia Capital, Union Square
Ventures, and Founders Fund, while Polychain has received
investments from Andreessen Horowitz and Union Square
Ventures, among others.

Still, ICOs are beginning to see direct venture investments, typically

via SAFT (Simple Agreement for Future Tokens) agreements.
Filecoin sold tokens to accredited investors and VCs in its $52M
August 2017 pre-sale, which saw participation from Sequoia
Capital, Andreessen Horowitz and Union Square Ventures.

2. Bitcoin-Correlated Investments

VCs have often looked to gain exposure to cryptocurrencies by

investing in startups correlated with cryptocurrency prices and
trading volume, such as exchanges or mining companies.

Investments by brand-name VCs into Coinbase (USV, Andreessen

Horowitz), BTC China (Lightspeed), Bitmain (Sequoia Capital), and
a number of other exchanges and mining companies emphasize
this sustained trend. Bets on exchanges have paid off as
cryptocurrencies have seen higher trading volume, with Coinbase’s
most recent $100M Series D valuing the firm at $1.5B.

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3. Payments & Remittance

VCs have also bet heavily on Bitcoin’s whitepaper-outlined use-

case as a decentralized currency, seeing immediate applications in
payments and remittances.

However, companies focusing on bitcoin as a means of exchange

have often been stymied by the cryptocurrency’s volatility.

Fred Wilson of Union Square Ventures highlighted this volatility in a

recent blog post, writing: “This was a Bitcoin t-shirt I bought in the
summer of 2013 [for .18 BTC]. At today’s prices, that t-shirt cost
me $830 […] You can’t keep spending something that goes up as
much as Bitcoin has.”

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Indeed, many portfolio companies that focused on payments
have pivoted.

Coinbase initially promised “instant payments [and] widespread

[bitcoin] adoption” in addition to its exchange, but, after years of
minimal consumer traction, now focuses most of its resources on
its successful exchange and trading platforms.

Circle closed its $9M seed round in 2013 promoting peer-to-peer

bitcoin payments, but no longer mentions bitcoin on its site.

BitPay, a notable exception, received January 2013 seed funding

and has stayed true to payments processing, allowing merchants
to transact in bitcoin. It recently saw its volume surge 328% and
predicts $1B in 2017 turnover.

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4. Alternative Use Cases

Farther-ranging blockchain applications have also seen venture

backing, especially as the conversation has shifted from Bitcoin to
blockchain at large.

USV and Andreessen Horowitz have frequently bet together

on alternative blockchain use cases, including investments to
Mediachain (which focuses on blockchain-based digital rights
management and was acquired by Spotify) and OpenBazaar
(which focuses on decentralized e-commerce).

Corporates have also co-invested alongside venture investors in

this subcategory, with Filament, a blockchain-based IoT platform,
raising a $15M Series C in Q1’17, with participation from Intel
Ventures, JetBlue Ventures, and Verizon Ventures, among others.

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5. Private Blockchains

Private blockchains — as opposed to public blockchains, like

Bitcoin and Ethereum — are often run by centralized administrators
and customized for internal organizational use cases, making
them more palatable to corporate interests concerned with privacy
and security.

However, private blockchains have been criticized for diminishing

blockchain’s implied network effects and likened to intranets (as
opposed to internets).

Key private blockchain providers include Digital Asset, which has

raised $67M in total disclosed funding, and Axoni, which raised a
$2.8M seed in Q3’14. Additionally, Chain raised a $4.2M seed round
in Q3’13 from Thrive Capital, RRE Ventures, and SV Angel, among
others, to build out its “blockchain API,” pointing to virtual currency
as just one of many blockchain applications.

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 Corporate Corporate investors have traditionally invested into private
blockchains and joined consortia, but they are increasingly starting
to experiment with public blockchains like Ethereum.
Investment More corporates are starting to invest in the sector, with the

Trends
number of active corporate investors rising to a new high of 91 in
2017 YTD. This number had fallen in 2016, following a 2015 high of
89 (which was largely due to R3’s Q4’15 consortium-building round,
which saw participation from 35+ financial institutions). Notably,
the number of active corporate investors is closing in on the same
metric for VCs, which has seen 95 active investors in 2017 YTD.

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Corporate Investment Trends
Since 2012, corporates have participated in 140+ equity
investments totaling nearly $1.2B. Corporates have been active
investors in the sector’s most well-funded companies, participating
in multiple rounds to companies including Coinbase, 21, and Circle.

Corporates have focused specifically on private blockchain

development, investing in Digital Asset’s $60M Series A in Q1’16,
Chain’s $30M Series B in Q3’15, Axoni’s $18M Series A in Q4’16,
and LedgerX’s $11M Series B in Q2’17, among others.

Japan-based SBI Holdings is the top corporate investor, with

investments into 8 unique blockchain companies. Google comes in
second, with 6 investments that span data storage (Storj), private
enterprise services (LedgerX), and merchant services (Veem).

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Overstock.com CEO Patrick Byrne is an outspoken blockchain
advocate and has built out an internal blockchain venture and
development team, Medici Ventures, to explore the technology. The
firm — which is the third most active corporate investor — recently
announced the launch of T Zero (t0), a blockchain-based trading
platform for capital markets.

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Financial Services Activity
Big banks and financial services firms were the first corporate
players to make direct blockchain investments en masse —
unsurprising, given how Bitcoin’s underlying technology lends itself
(both technically and in popular thought) to financial services.

Since mid-2014, more than 50 of the world’s major financial

services institutions have invested in the sector.

Since June 2014, the 10 largest US banks by assets have

participated in 9 rounds totaling $267M in disclosed funding to 6
blockchain companies (including one consortium, R3).

In addition to investing, banks have also partnered with blockchain

companies and other corporates on blockchain trials and projects.

Citi has partnered with Nasdaq and used its portfolio company
Chain’s blockchain technology to address liquidity challenges in
private securities transactions, while JP Morgan Chase is partner-
ing with SWIFT on a blockchain proof-of-concept for cross-border
payments (which is also seeing participation from Wells Fargo). JP
Morgan Chase is also working with blockchain developer AMIS to
expand its own in-house blockchain, Quorum.

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21
Consortia
Consortia fall somewhere between private enterprise blockchains
and public blockchains. In practice, consortia bring select organi-
zations from the same vertical onto a distributed database with
less centralized control than a private blockchain — a cooperative
neutral ground for traditionally competitive companies.

This creates a middle option, offering both the security of private

blockchains (a requirement by many corporations and their CIOS)
and the network effects of public blockchains.

Historically, fostering cooperation between participants has been

a challenge for consortia — a challenge also faced by their public
blockchain counterparts, as evidenced by vicious public gover-
nance debates. Collaboration is definitely not a given, especially
in the highly competitive fields (such as financial services) that
blockchain is immediately targeting.

Four major consortia exist today: Hyperledger, the Enterprise

Ethereum Alliance, Ripple, and R3.

Hyperledger

The Linux Foundation’s Hyperledger launched in 2015, with notable

early members including IBM, Intel, and Wells Fargo. Digital Asset
(a private blockchain) and Blockstream (a bitcoin-focused engi-
neering outfit) have since contributed codebases to Hyperledger,
implying continued cooperation between private blockchains,
public blockchains, and consortia.

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In July 2017, Hyperledger announced a production-ready
blockchain, Fabric 1.0, and in August announced an expanded food
safety trial with Walmart, Unilever, Nestlé, and Dole, among others.

The consortium has engaged in well over 300 projects and

currently has about 150 members, with most focusing on software
or financial services and hailing from the US or China.

Hyperledger is currently working on 5 blockchain projects,

including Sawtooth Lake (supported by Intel) and Burrow, which is
exploring interoperability with Ethereum’s smart contracts.

Enterprise Ethereum Alliance

Where Bitcoin’s Satoshi Nakamoto has remained in the shadows,

Ethereum founders formed a Swiss foundation and extended a
hand to corporates interested in the public blockchain space.

JP Morgan Chase and Microsoft announced early on that they

would be utilizing Ethereum to develop their own blockchain
offerings — JP Morgan with its in-house private blockchain,
Quorum, and Microsoft with its blockchain-as-a-service module
for Azure.

In March 2017, the Enterprise Ethereum Alliance (EEA) launched

with major support from Microsoft, JP Morgan Chase, and
Ethereum-development outfit Consensys, among a bevy of
other top-tier corporate players. Importantly, Microsoft’s sponsor-
ship of the EEA places it in direct competition with Hyperledger,
which had been spearheaded in no small measure by IBM and the
Linux Foundation.

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The EEA diverges from Hyperledger in its governance. Microsoft
and the EEA plan to utilize the public Ethereum blockchain, and
have little say in its technical development. IBM, Linux, and other
members of Hyperledger’s steering committee, on the other hand,
exert direct control over Hyperledger.

The EEA has added several cross-vertical and cross-sector players

looking to experiment with Ethereum, with over 120 new members
joining the consortium since its launch — making it the largest
open-source blockchain alliance.

Members cut across sectors and geographies, with nearly 50%

based in North America, 27% in Europe, and 21% in Asia, according
to notes from a recent EEA town hall meeting. The consortium has
also announced the creation of seven working groups, including
healthcare, supply chain, and insurance, though trials and proofs-
of-concept have yet to seriously materialize.

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Ripple

Although not technically a consortium, Ripple administers a

number of consortia that use its enterprise software, including
a Japanese banking consortium with 60+ members. Ripple has
also partnered with a number of major global banks on successful
cross-border payments pilots.

Ripple differs drastically from other consortia and private

blockchains in that it is largely self-funded by its free-floating
cryptocurrency (XRP), which currently holds a market capitalization
by total supply of around $20B. The company, which allows global
banks make transfers between each other without moving funds,
competes most directly with SWIFT.

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R3

With high-profile members Goldman Sachs, Morgan Stanley,

JP Morgan Chase, and Banco Santander all leaving the consortium
in 2016 and early 2017, R3 has faced adversity. The consortium
also sued Ripple in September of this year, accusing the company
of reneging on an options agreement for XRP now worth more
than $1B.

However, R3 still counts more than 100 member banks and

financial services firms, and is forging ahead on a number of
projects and partnerships. THe company recently announced plans
to release a production-ready version of its enterprise software,
Corda, within the next few months.

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Looking As a whole, blockchain is still in its nascent stages.

Teams holding ICOs have yet to collaborate with regulators to

Ahead develop strong legal frameworks, and state bodies continue to

grapple with the question of how to regulate inherently decen-
tralized protocols. And, given that major cryptocurrencies (like
bitcoin) have often been used for illicit black-market transactions,
regulatory clarity could be an uphill battle.

Meanwhile corporate players have shifted between private

blockchains, public blockchains, and consortia. With recent
successful pilots thrusting the technology back into the spotlight,
corporate investors will have to take a hard look at their blockchain
bets and consortia memberships to find concrete solutions in this
developing sector.

Venture investors are still looking for real blockchain usage beyond
speculation, as most teams exploring blockchain use-cases have
been hard pressed to find users. This is an immediate requirement
for the sector to mature.

Judging from the data presented in this report, though, the future
seems bright, as investment in blockchain technology evolves in
new and innovative ways. As the landscape evolves, the future of
investment in the space will likely take on forms yet to be imagined.

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