VC, ICO, STO and Future of Investment
Larger size VC funds almost reached their 10-year-peak with 19% IRR in the 2d quarter of 2018. However, the funds with less that $250M under management still have a way to go to reach their maximum values, in the same quarter these funds showed 13.8% IRR.
Global VC Fund Performance 2007-2018. Rolling One Year Horizon IRRs by Fund Size.
*Source: Pitchbook 2018
“Higher risk generates higher returns” statement was definitely true in 2Q 2018 as VC funds demonstrated the highest average return (18.14%) compared to other funds.
* IRR by Fund Type 2Q 2018 Pitchbook
Previously, during the ICO hype, the cumulative funds raised by blockchain startups on ICO were much higher than by VC funds. However, experts predict the trend change with a significant decline on ICO market in favour of VC investments. The reason why VC investments might be more valuable for startups is that VC funds are also bringing their expertise and connections, that can help young entrepreneurs to successfully develop their business.
Why STO is the hottest topic now?
Recently, many startups started looking for STO opportunities and STO-friendly countries where their security tokens can be listed. Although, this market is in the middle of development and still have a lack of liquidity, we cannot deny the importance of security tokens in the future of investments.
Security tokens are digital representation of tangible assets, company’s revenue, etc. and classified as securities, thus they are subjected to certain regulations. Even though the listing process is tough, some companies including Blockchain Capital and SPiCE VC already issued their security tokens. Current regulations are still far from being perfect and need a lot of changes to make the STO market more efficient. One of the main obstacles is an absence of global regulation, thus companies have to comply with several regulators if they want investors from several countries to participate in STO. For example, if STO will be conducted in US and the company is willing to attract British investors, the offering should be complied with both SEC and FCA.
We are following all the legal updates and expect more countries to develop STO regulations, unfortunately, the global legal framework that will eliminate the necessity in multiple compliance procedures is still far from realisation. Despite that security tokens have a long way to go overcoming all the obstacles, they will be the core investment instrument in future. For some areas they might be just a better fundraising way, but for some areas they can completely change the rules. For example, tokenisation of real estate that unlock new investment opportunities, as even the luxury property can be sold to the crowd rather than to one wealthy individual.
Our team would like to share more STO-related information with you in the next articles.