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Investment Strategies With VCs and Funds

November 20, 2018 5 min read


Investment Strategies With VCs and Funds

“Winter, nuclear winter, or ice age?”

Moderator Miko Matsumura opened his panel “Investment Strategies with VCs and Funds” with a bang, asking his panel of investors whether they believed the market downturn was a winter, nuclear winter or ice age. The lively panel never died down once, and the consensus? Winter, but spring is approaching.

A Dream of Spring

While the crypto market may be down, and George R.R. Martin’s A Dream of Spring may never see the light of day to bring the Game of Thrones series to its climax, the investors on the panel remain active in committing capital in crypto and believe that the market will soon turn.

Peter Chen (left), Sunny Dhillon

Sunny Dhillon, a Partner at Signia Venture Partners, believes it is “consumer winter, but the institutional side is more like spring.” He cited Goldman investing in BitGo, custody solutions, proposed Bitcoin ETFs, and larger exchanges with larger token listings as signs that the market will turn soon. Arianna Simpson, Managing Director of Autonomous Partners, and Peter Chen, the Founder of Building Block Group, both echoed that message, pointing to greater infrastructure and more money flowing into the market as signs that crypto is not going anywhere. There has been too much development.

As to why we are in a bear market, Matsumura said, “how do we flip the crypto economy? There are 4 groups: pump and dumpers, investors, builders, and suckers. Pump and dumpers are winning.”

Simpson quickly countered, “they’re not winning. Look at the pumpers these days. It has died down. The market corrects itself. The market has started to rationalize.” Earlier on the panel, Simpson articulated her view on why the market crashed by referencing Carlota Perez, who has published studies on the adoption cycles of new technology, from the Industrial Revolution to the Web 1.0. In Simpson’s words, Perez suggests that the cycle is as follows: “there is an excessive amount of capital that attaches itself to any given [new] technology. It creates a mismatch between expectations and reality, [so] you have a crash. Then the technology develops to the point where you have real value.”

Are tokenized securities good investments?

A glimpse of the cocktail hour at the end of the conference

The panel acknowledged that STOs are new but could be a powerful economic force in crypto. Chen, who invested in ICOs last year, has transitioned away from the structure to focus on STOs, noting that while ICOs were mostly based in Asia, STOs will have a dominant presence in the US in order to get access to US capital markets.

No one on the panel disputed that liquidity and fractional ownership are value-adds from tokenization, but they also offered words of caution. Dhillon said, “chopping up ownership is not a novel thing on Wall Street. Smart contracts that trade compliantly are more novel. That being said, if the underlying asset has no value, the token has no value.”

Miko Matsumura (left), Arianna Simpson

Simpson echoed that sentiment, saying that “tokenization doesn’t fix everything” and that “just because real estate has a token doesn’t mean you know anything about real estate,” pointing to the fact that offering complicated investments to retail investors brings its own challenges. It is compelling to create more opportunity for entrepreneurs and investors, but how do you educate the market to make smart investment choices in assets they don’t fully understand?

Matsumura believes that despite those challenges, STOs could be “a material change to the industry,” creating a second legitimization of the space and adding $10 trillion USD of value to crypto.

Taking a step back, near the close of the panel, Matsumura spoke about the thematic shift he wants from the market, stating “I really like the magic word ‘revenue.’ I like companies that have products, that have revenue, because it’s an antidote to the culture we are in today which is white paper + hype + oligarch / yacht = ICO.”

Over the course of the panel, the topics of discussion were not new white papers, but products, markets, and use cases. Where are customers, and where is the money? As the market matures, so too are investment strategies.