3rd Jul 2020

Why Blockchain and Why Now?

Research Manager Asen Kostadinov tells the Crypto Curry Club why we’re excited about this space.

You can watch the full session here.

So why is MMC investing in blockchain?

At MMC we have spent the last few years researching and investing in enabling technologies (we make lots of this research available here). Our view was that there weren’t many other technologies that had the same potential impact as blockchain. We are also looking into the possibilities of quantum computing, but our initial view is that is much further behind in terms of commercial use cases.

Despite the excitement about the potential of the technology, committing capital to blockchain investments wasn’t a ‘slam dunk’ decision. There was healthy skepticism across the team about the investment potential – perhaps not surprising given the bad press for the sector across 2017/18.

The reality is that the technology is early and still somewhat immature, so it is easy to pick holes in it. But we believe our job as early stage investors is to recognise if inflection points for these technologies exist and when they might happen.

So why now?

There are four major pillars that helped us build conviction that we may be approaching an inflection point.

  1. The technology is maturing - From our primary research it seemed that very few projects were being limited by the capability of technology. And any technology problems that persisted were likely to be solved by the number of developers being employed to address them. According to the international recruiting company Hired, in a single year (2018-2019), positions for blockchain engineers in Silicon Valley increased 517% (although that normalised to 9% growth in 2020).
  2. Maturing talent in space - Both in founding teams as they appeared to be increasingly more pragmatic, detaching their priorities from token prices and instead focusing on the business fundamentals. And, in new impressive talent being attracted to the space. We identified a significant number of individuals within our networks leaving successful financial services careers to help build blockchain startups.
  3. Adoption is accelerating - Although we had seen enterprises running pilots and otherwise experimenting with blockchain use cases for some time, we started to see them put more meaningful resources behind the technology and identifying blockchain as an integral part of their future success. Indeed, according to Deloitte's 2020 Blockchain Survey, enterprise "leaders no longer consider the technology groundbreaking and merely promising—they now see it as integral to organizational innovation." In 2020, the share of companies having blockchain in production has risen to 39% from 23% in 2019 (this is even higher, 46%, for the companies with US$1bn+ in revenues).
  4. Regulatory clarity is emerging - Regulatory clarity is improving considerably. Unsurprisingly given the early use cases of blockchain technology, financial services regulators are leading the way and increasingly accommodating cryptocurrencies and other digital assets. This provides more certainty to entrepreneurs and encourages innovation.

Of course, timing the exact inflection is impossible and at MMC we’ll be diversifying our approach - across verticals, founders and the technology stack.

What’s getting you excited?

One of driving questions around the blockchain space is ‘what are the key enablers to mass adoption?’ i.e. if crypto or blockchain become ubiquitous, what is a pre-requisite for the space to grow?

Our first blockchain investment was in a company called Copper. You can read more about our reasons for investing here. Copper offers custody and trading infrastructure for digital assets to institutional investors. Copper is by no means the only custodian for digital assets out there and we spoke to many of them in our early research. Copper has, however, quickly established itself as the go-to provider of safeguarding and trading infrastructure for institutions invested in digital assets. Something that is crucial for the capital markets blockchain ecosystem to further develop and prosper.

For Copper, custody is the beachhead into the capital markets infrastructure market - that's the end goal.

We've made a second investment in the space that we'll be announcing soon!

The right team, at the right time, in the right space

The reality is that startups aren't really companies yet, they are typically a group of founders on a mission with a shared vision to change the world. A prerequisite for backing a business at this stage is our belief in that vision as well as the grit and agility to build a business.

There is a school of thought in VC that a great market is the best indicator of success. Famously Andy Rachleff (Wealthfront and Benchmark founder) said:

  • When a great team meets a lousy market, market wins.

  • When a lousy team meets a great market, market wins.

  • When a great team meets a great market, something special happens.

We spend a lot of our time doing DD on the market dynamics for potential deals. Clearly, we cannot become experts in every vertical in which we’ll invest but by equipping ourselves with a better understanding of the major trends, success factors, buyer behaviours and potential risks, we’ll be a better partner to the founders we choose to back in that space.

We often say that when doing an investment, we face:

  • Known knowns

  • Known unknowns

  • Unknown unknowns

Our focus is on increasing the first (known, knowns) but also dialling down the last (unknown, unknowns) – no one like nasty surprises later down the line.

So how do I get in touch?

It’s a bit of a cliché but if you’re a founder looking for funding, the best way to reach out is still through a warm introduction. Look for anyone in your contacts with a route to MMC – you’re much more likely to get to the top of our ‘to-do’ list that way.

That’s not to say a cold inbound won’t get to us eventually (and you can contact me and the rest of the team directly) but it will likely take much longer for you to get a response. Please bear with us!

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