In this episode of More Than Money, CoinGeek’s Patrick Thompson talks to Tal Elyashiv, the co-founder and managing partner of SPiCE VC.
SPiCE VC launched its first fund in 2018. It’s focused on blockchain companies and is the first fully tokenized VC fund in the world.
What is a fully tokenized VC fund?
Thompson picks up on this concept when Elyashiv introduces himself. He wants to know what a fully tokenized VC fund is.
Elyashiv explains that one of the main issues with entry into VC funds is that they’re illiquid, and the price for entry is high—typically into the millions of dollars for each investor, and the funds are usually locked up for 10-15 years. SPiCE took the rights investors typically have and issued them as digital security, giving holders the same rights as traditional investors have and making the digital certificate tradable. With SPiCE, investors have the benefit of investing in a VC fund, but they have the option of liquidity.
What has your experience been like raising a fund?
Thompson asks Elyashiv about his experience raising funds and his opinion on what it’s been like raising in recent times.
Elyashiv points out that some investors were hit hard when token prices crashed recently. “They have a hard time investing in anything,” he says. However, he points out that VC investments are not correlated at all with markets. “It’s the least correlated asset there is,” he tells Thompson, concluding that a portion of any decent portfolio must be allocated to VC.
He points out that most investors in the SPiCE II fund are institutional; family offices, pension funds, etc. They have a different problem; they must deploy capital and can’t be scared. Elyashiv says that from this point of view, it’s an excellent time to raise funds right now. As well as this, the market correction will bring valuations down to normal levels, which is beneficial for long-term investors. He says that one of the biggest problems entrepreneurs face today is getting people to decide on investing.
What are some signs that a company is right to invest in?
Thompson wants to know more about how funds like SPiCE make decisions about what companies to invest in and what ones they should give a miss.
Elyashiv answers that, as a VC, he thinks about the fact that, statistically, 95% of ventures fail. He asks why a given company might be one of the 5% that succeeds. He also focuses on what causes companies to fail and assesses whether the ones he’s interested in have what it takes.
Some of the factors he looks at include:
The Team – Do the people have the necessary skills to be successful?
The Problem – What problem are they solving? Is it a big problem that needs to be solved? If so, it increases the probability of success.
The Ecosystem – A company can’t succeed in a vacuum. Many factors need to occur in the market for a company to succeed.
The Competition – How unique is what you’re doing? Is it easy to replicate? Is there anyone else out there doing it already?
The Timeframe – The idea must be able to be successful within the timeframe of the fund. Otherwise, the company may succeed, but investors may not realize the value.
What are some red flags? Elyashiv doesn’t like it when people are enamored by their own solutions and technologies. He also expects entrepreneurs to be the most convincing people regarding their ventures. Lastly, when entrepreneurs are not open-minded, that’s a bad sign; they need to be able to pivot as things change.
Any quantitative metrics?
Thompson presses deeper on the initial question, looking for some more concrete metrics a fund might look at before investing.
Elyashiv mentions existing revenues, the overall business model, any applicable financial models, and the assumptions at play. For him, it’s crucial to understand how the firm will make money and that they’re comfortable with the numbers. Technology is also of critical importance.
In Elyashiv’s view, investment is 90% science and 10% magic. The magic is important, but thorough due diligence is also crucial. This latter point is why SPiCE is focused on one industry: blockchain. It’s the one they understand best. They know there will be mega changes in all transactional industries, such as payments, games, art, and supply chains, and they want to zero in and focus on this industry.
“There’s nothing cool about blockchain like there’s nothing cool about any other database, protocol, or anything else. This coolness is in what are you doing…and how you are changing the world,” Elyashiv says.
What obstacles do these blockchain and digital asset enterprises face?
Elyashiv says that big players in the market will break into two; those who embrace new technologies and those who resist and die.
He also points out that this revolution is very different from the internet revolution. The internet revolution has changed everything about our lives over the course of the last 40 years, and it’s not done yet. However, when it comes to the blockchain revolution, we’re looking at 10-15 years with a much bigger impact. Companies that don’t figure out how to be part of it will die, Elyashiv says bluntly.
As the interview draws to a close, he states that all of the big players and innovators are already getting involved and adopting the technology. All major banks and capital market players understand the impact on their businesses this technology will have, and they’re planning to adopt it now.
General takeaway for the audience
As a final takeaway, Elyashiv says that VCs should realize the potential to create a greater ecosystem as a whole rather than just helping individual portfolio companies survive. In his view, VCs should use their connections not only to invest in companies but to look for opportunities they can spin off and grow to fill gaps in the market.
The key takeaways from this interview include:
- VCs use both qualitative and quantitative metrics when evaluating investments.
- Blockchain should be a key pillar in the solution a company is building.
- VCs are more interested in investing in businesses than they are in the technology stack.
Watch: The BSV Global Blockchain Convention panel, Blockchain Venture Investments: Driving Utility for a Better World
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