The Rise of Blockchain Technology Could Change the Venture Capital Investment Landscape
Venture capital-backed investment deals have shown strong performance indicators over the past few years, although the global pandemic has caused some companies to shelve investment deals for the time being.
According to KPMG reports, venture capital-backed companies raised more than $808 billion globally through 5,418 deals by the end of 2020. Now investors are on the rise, as global venture capital funding venture topped $300 billion, making it the second-biggest year for venture capital. sustained funding since the beginning of the decade.
So far, 2022 has featured a robust global venture capital investment market, with over $144.8 billion in global funding deals signed for the first quarter of 2022.
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Industry experts are battling among their peers to secure major deals with future entrepreneurs and startups. And now, with the prevailing innovation and development of blockchain-based technology, venture capital deals may soon look very different in the years to come.
Big bucks for blockchain
Blockchain has seen incredible support over the past few years, with more competitors entering the market and bigger funding rounds than ever before. Global blockchain funding had its biggest year ever in 2021, with investments up 713% to over $25 billion in VC-backed funding deals.
The numbers present more than the traditional understanding surrounding supporting blockchain technology tools and platforms received over the past few years.
Globally, venture capital held in blockchain companies and startups has grown faster than some experts had originally anticipated. The United States saw a record $6.36 billion in investments with over 157 deals.
According to Dale. W. Wood, CEO and Founder of Dale Ventures, a global investment firm, changes and adaptability would help see a new generation of venture capital deals, which reveals just how far the global marketplace can to be intangible.
Dale Wood started Dale Ventures in 2017, after working alongside various industry experts, seeking to create value-added investment opportunities for startups and entrepreneurs. Dale Ventures has been able to form a remarkable success that is now tied directly to an assortment of investment groups, allowing them to diversify their venture capital resources and approaches.
Consumer interest and institutional demand for digital assets such as cryptocurrencies and non-fungible tokens, among other assets, garnered major support after major cryptocurrency Bitcoin (BTC) hit an all-time high level never reached in November 2021 with more than $69,000.
The democratization of markets and trading platforms also means that more investors, from different backgrounds and economies, can leverage digital commerce and blockchain-based products or services.
Breaking all the noise, Digital Currency Group led the pact last year, investing over $72 million in crypto, fintech and blockchain companies. The New York-based venture capital firm has become a household name among venture capitalists, supporting seed, early and later investment rounds.
Another major name in this category is SVB Financial Group (NASDAQ:SVIB), closer to the end of 2021, which is looking to expand its influence in the technology and software sector. After creating a new arm of interest – Tech Investment Banking Team – SVB Financial was able to become a prominent player among other competitors to support blockchain and tech-based startups in the space.
Safeguard Scientifics, Inc (NYSE: SFE) has so far made more than 173 investments according to CB Insights. The company is primarily focused on entrepreneurs in the technology and healthcare sector, supporting emerging businesses and companies that are ready to push the boundaries of what contemporary blockchain technology can do for other organizations. In 2021, Safeguard generated over $61 million in revenue after selling 7 seats, resulting in the company returning over $41 million to its shareholders.
Regardless of their size or the amount of money they pour into startups and blockchain-based companies, these venture capitalists, among other names, are eyeing the growing interest in blockchain and digitalization. of the broader venture capital market.
With the increasing amounts companies are willing to stake, what could blockchain mean in return for venture capitalists?
Under conventional circumstances, entrepreneurs and startup owners will be able to obtain financial funding from venture capitalists. But as blockchain-based technology and software take shape, blockchain can help break down barriers that can prevent entrepreneurs from closing the deals they need to get their business off the ground.
With better blockchain-based solutions, retail investors can now reduce their risk, putting the investor in direct contact with the entrepreneur.
As startups are now able to raise funds using blockchain, venture capital and retail investors can be offered more liquidity through token staking.
Tokenized staking allows investors to buy startup-specific tokens or digital assets. Based on these assets, investors can decide whether to hold, trade or sell their assets in the market or as part of company operations.
The blockchain develops a new cycle and new means of investment. By owning digital assets and trading them, investors continue to put funds back into the business, while ensuring their protection and liquidity throughout the life cycle of the project.
If investors feel that a project might fail or lose confidence in the potential growth of the assets, they always have the option of offloading the digital assets, reselling them to the company or pegging them to real-world assets such than forex or commodities.
Although token staking offers better risk reduction, it requires startups to have the technology and software to offer digital assets to investors. Whether it is tokens, crypto or even non-fungible tokens (NFTs), startups are constantly ready to innovate in their investment process to attract potential investors.
Small business entrepreneurs still have the option of obtaining financing through traditional capital markets. This reduces the risk they may have to assume for the development of digital assets, but it decreases their pool of potential investors.
Traditionally, venture capital funding was mainly about providing financial backing, but with the advent of modernized technologies, venture capitalists can provide advice and support to owners looking to get their business off the ground.
Through early investments based on blockchain technology, owners can rekindle their vision and understanding of the business world. It further pushes them to gain a fresh perspective on their business ventures.
Still, venture capitalists can just offer basic advice, but thanks to blockchain, that means they can actively participate in project cycles. Better performance numbers allow VCs to see how their investment can grow.
The potential of blockchain in the venture capital investment market is creating opportunities for a new era of venture capital culture. Perhaps the modernized era has proven to offer more than digital assets to users and consumers, but improves risk reduction throughout the investment and growth process.
Dynamic coin supply in venture capital
Dynamic Coin Offer (DYCO) is a development model that was introduced by DAO Maker. With a dynamic coin offering, companies can offer utility tokens that can be backed by the US dollar.
DYCO is, however, a short-term solution, which can only support startups and investors for the first 16 months of company-specific projects and entrepreneurs.
Simply put, a DYCO will allow venture capitalists to see initial growth in their investment, but over time, as projects begin to become more profitable, investors can decide whether to hold or sell their tokens. .
Startups and corporations can decide how many tokens are in circulation, and when investors start redeeming their tokens, they are permanently removed from DYCO circulation.
The good news, however, as the supply of tokens begin to dwindle, their value begins to rise. For venture capitalists, this could mean that when other investors start reselling or redeeming tokens and projects start to take off, the value of the tokens can increase significantly.
While this can be felt in the years to come, it will be up to investors and entrepreneurs to work together to ensure that business advice and support is provided throughout the project cycle.
The investment industry is experiencing significant changes and innovations through the use of blockchain. It may still take time before VCs can take full advantage of what blockchain has to offer for their investment capabilities, but it creates a new range of opportunities for entrepreneurs and startup owners.