Will Early-stage Bitcoin Ventures Raise Money in 2016?

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A few weeks ago we wrote about how the Bitcoin market was consolidating. However some early stage deals did get done in 2015. In this research note, we look at them to see what they tell us about the state of the Bitcoin market during the current bear market.

SafeCash 

The proposition: take cash to a bank and purchase digital tokens which preserve the privacy and universal acceptance of cash, while adding in the security and digital portability of cryptocurrency.

This is using a Bank like a Bitcoin ATM. They advertise a “fully compliant, legal banking product”; if they have cracked this regulatory on ramp issue they may thrive.

Pey

PEY will be launching the payroll solution that enables companies in Germany to pay a portion of their employees’ salaries in the digital currency. More people getting paid in Bitcoin is great for the Bitcoin ecosystem but I struggle to see why employees would choose to be paid in Bitcoin. I suspect the first to be motivated to be paid in Bitcoin will be micro entrepreneurs, which is why Open Bazaar is one to watch.

Coinalytics

This comes from Swiss entrepreneur, who started in Berlin and then moved to Silicon Valley – showing again how global entrepreneurs are today. This looks more like Enterprise Blockchain without Bitcoin, which is still in the Cambrian Explosion stage.

Abra

This is a remittance venture using the concept of Tellers – local people who will give you cash. This could break the dominance of Western Union if they succeed in getting a critical mass of tellers.

Case

This is a hardware wallet. This more secure than a mobile phone and I can imagine Bitcoin enthusiasts liking this, but it seems like a backward step from a user experience point of view (i.e. most people want fewer things to remember to take with us not more and so it is hard to imagine the transition to mainstream).

ZapChain

This is micropayments for content creators. As a content creator I am skeptical of this use case until millions use these wallets regularly. I hope to be proven wrong.

ScoreChain

This looks more like Enterprise Blockchain without Bitcoin which is still in the Cambrian Explosion stage.

Orb

This is a Tokyo based venture previously called CoinPass and the product is called SmartCoin. This comes from an experienced team and their raise was fairly substantial but their pitch is vague I cannot see what they do.

It will be interesting to see what early stage deals get done in Q1 2016, after the stock-market decline. Our thesis is that early stage Fintech will do well during a macroeconomic downturn if they are focused on lowering costs for either consumers or enterprises:

  • Ventures offering much lower cost for consumers. During a recession, consumers mind every penny. This is where, for example, a decentralized Blockchain based sharing economy venture that takes 2% rather than 20% may thrive. Conceptually this makes sense, but replacing ventures with entrenched network effects is tough, so I suspect ventures like this will struggle to get funding during a bear market. Those that can get to market and get traction will be the next Unicorns when the next bull market appears.
  • Ventures offering Radical Cost Take Out in Enterprise. During a recession, enterprises know they cannot grow the top line, so they cut costs. Blockchain based systems promise a radical rather than an incremental cost take out. Don’t shave 10% costs from processes such as Compliance, take out 90% of the costs. Ventures that can show they can do this will get funding and customers quite easily during a bear market.

During the 2009 downturn, when I was tracking early stage ventures for ReadWrite, I noticed only a blip in the financing. The late stage stuff got hammered, but early stage funding recovered very quickly. It may be the same in this cycle. it is certainly logical. When you invest early you plan for liquidity in the 7-10 year range during which the macro cycle will probably turn positive again.

However, ventures that bet on Bitcoin as a whole getting to Product Market Fit will face a tough time until that is clearly going to happen. I look forward to seeing what early stage Bitcoin deals get done during Q1 2016.

If you see any early stage Bitcoin deals done in 2015 (or in Q1 2016) that I have missed, please tell us in Comments.

 

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