The blockchain industry survived the bitcoin crash of 2018. Now its gaining steam. Gartner says the added value from blockchain will be worth $176 billion by 2025 and more than $3.1 trillion by 2030.
Investment in blockchain by venture capitalists for 2018 was over 3.9 billion, triple the amount from 2017. There are more blockchain startups seeking funding than ever before. So, when a Venture Capitalist spends most of 2018 looking for a blockchain startup to invest in but can’t find one, you may wonder what’s going on.
Carolin Funk is a Venture Partner with energy technology specialist Blue Bear Capital. She has a passion for solving the world’s energy problems and a talent for driving change. Blue Bear has a global investment network and all the funding an entrepreneur could want. So why was Funk unable to find a suitable blockchain startup after spending the better part of 2018 looking for one?
What’s Holding Back the Money
Despite all the potential growth and interest in investing in blockchain, there’s still risk. Blue Bear increases the odds of success for their portfolio companies by focusing on the industry they know best, energy. Specifically B2B software in that industry.
The Blue Bear Capital team has decades of experience in their chosen sector. Their portfolio companies get access to their network of trusted partners including private equity firms, major renewable and oil and gas companies. Also part of their network are utilities in North America, Europe and Asia.
They focus on early-stage startups in their early growth phase. Blue Bear helps them generate customer traction for fast growth and arranges for funds at later funding rounds. Further, they assist with hiring and developing a market expansion strategy.
Their due diligence process eliminates risk for their investors, but it also eliminates 99% of the startups that don’t meet their high standards. If you do, it can certainly be worth it. One company that’s part of Blue Bear’s elite 1% is Freewire Technologies.
A Venture Capitalist Success Story
Freewire is a leader in providing mobile power for electric vehicle charging. After getting funded by Blue Bear Capital in 2016 they were matched with BP Ventures.
So why has this energy VC been so reluctant to invest in startups that deploy blockchain technologies to the energy industry? Here are three indicators your startup could be part of the 1% Blue Bear deems worthy of investment.
You Have a Repeatable Product
Carolin Funk believes good energy blockchain products are hard to come by. Most of them are not products, but projects. The main test of a good product is that it’s repeatable. She said there are a few dozen startups in the energy space claiming to use blockchain as an enabling factor. “But what they’re doing is creating projects for different companies.”
Then there are the platform technology focused blockchain startups. These are technology companies looking for a problem to solve and don’t bring the industry expertise that is needed in a complex market such as energy. Just offering a platform doesn’t make them a good investment.
Finally, there are the firms developing demonstration solutions using third party technology. These companies are actually working with technology consultants. A lot of their core technology is being outsourced to engineering shops. The internal value and unfair advantage these companies create is usually small.
You’re a Good Fit for Equity Funding
Then there is the question about the type of funding. Are you looking for an ICO or an equity investment? And is this aligned with what you are looking for from an investor? An ICO has inherent risks. You don’t know who the users will be or what the value is going to be. Token sales may also attract the wrong kind of investors.
It’s not trivial for a Venture Capitalist to invest in a company focused on token sales. This is especially true at the early stage. Blue Bear is not opposed to creative funding arrangements, but they still need some kind of governing ability.
This is what enables them to open up their network and help a company grow. If the type of funding a startup wants is not in line with what they offer then they’re not a good fit.
You Hate the Hype
2018 was the year of blockchain hype. The problem with hype is that it leads to uncompetitive valuations. Funk admits it may be partly due to her German background. But she prefers companies that don’t inflate the facts. Then valuations have a better chance of matching the actual revenue the company is presenting. Everyone saves time.
It’s common for entrepreneurs to be aspirational. But, she said, “there’s a difference between a signed contract and customer in the pipeline.” Further, having a business card does not mean a Venture Capitalist is in due diligence with them.
Overselling doesn’t help either party. She explains, “If you’re claiming things that aren’t true, we’ll find out during out due dilligence process. We are very thorough.” She says don’t worry if you only have a small handful of customers or even prospects. It’s expected for an early stage startup.
Get Funded by a Top VC
Carolin Funk remains excited about the possibilities of energy industry technology. She believes the sector needs a distributed data management solution. She said, “If you think about renewable energy, it’s all becoming more distributed. Wouldn’t it make sense to have a distributed digital layer?”
She’s in connection with the companies she’s excited about and keeps an eye on their progress. Finally she concluded, “I hope 2019 will level the playing field a little bit. This will open entrepreneurs up to being a little more realistic.”