In our recent Startupedia VC Connect Q&A Webinar we got to speak with Bee Partners investor Kira Noodleman about funding startup teams using blockchain technology, and how the product and investment landscapes look today. Read the key insights of our conversation below or watch the full webinar video recording here.
What are the major challenges that the blockchain industry must overcome?
Kira mentioned three challenges that investors have agreed upon unanimously:
First, security. The system is set up for transparency for all kinds of transactions, crypto or otherwise. But that means your bitcoin account is not private, your identity is not private, and what you’re storing is–you guessed it–not private either.
Second, scalability. No one has been able to predict what blockchain technology will look like at scale, with millions of users–especially when companies like Ethereum and VISA can process up to 45,000 transactions per second. We are nowhere near where we need to be to have blockchain really take off in a real way.
Third, regulations. Regulations change almost daily–different organizations have jurisdiction over different parts of the ecosystem. There is an ongoing debate about the difference between utility tokens and security tokens–the latter have to be registered with the FCC and follow certain guidelines, while utility tokens do not. Since so few applications have had a real use and product market fit, it could be argued that nothing counts as a utility token.
How can you best categorize Blockchain related startups?
Blockchain startups can be categorized in 5 key ways:
1) Borderless markets. A decentralized exchange that is available any hour of the day and any day of the week. This is a huge shift in how we manage our own data: unlike Facebook, where the users are the product, we own our data and can monetize it as we like.
2) Computing. Specifically, three elements of computing: storage, computing, and communication. In storage, we have solutions like Filecoin and Sia. In computing, we have a solution like Golem; in communication we have Blockstack.
3) Supply chain. Walmart is working with food transparency in blockchain technology. Risk-adverse companies are changing their processes, and are successfully tying physical assets to a digital chain.
4) Identity. Instead of needing the government to give you an identity, you can establish it yourself as an individual. For example: a company called Evernym collaborates with the state of Illinois to issue birth certificates. In Zug, Switzerland (often called the Crypto Valley), blockchain is being applied to a municipal voting project. (More info in this article ‘Crypto Valley’s Zug to Run Switzerland’s First Blockchain-Based Municipal Vote’.)
5) Futuristic potential applications. Some of the biggest blockchain uses probably haven’t even been thought of yet! As more and more tokens will be created, future entrepreneurs could make their mark connecting different blockchain applications. For instance: how will two online finance powerhouses like Paypal and Venmo connect? How will two blockchain systems be able to “talk?” What kind of universality will be necessary?
What aspects are you looking for in Blockchain startups–specifically, what do you look for that’s different from startups in other verticals?
Investors are always looking for a high-quality team, huge market size, and a product that comes from deep market insight. In blockchain startups, however, there is a heavier emphasis on technical capability–that’s one part of your team you’ll want to make sure is strong. There is a lack of experience in the space, so your tech-savvy workforce can be a determining factor for your team.
Companies all have different metrics. For digital asset management applications, you can manage all kinds of things like storage, liquid real estate assets, and privacy tokens, with different stats for each.
We ask each team about their success indicators–how do they know that there is a captive market interested in this product? When you are a pre-product market fit, your main challenge is that you technically don’t have a market–you have to work on developing and building the right metrics.
Teams shouldn’t be raising money through an ICO before they’ve figured out the product market fit, or else they are giving access to their product and service to the end users too quickly. There are many pivots that need to happen before you get to that point.
What is your key advice to blockchain startups to raise funding?
Find and surround yourself with the right partners–you’re not going to be able to do it alone! Invest in business fundamentals. It’s easy in blockchain to take a shortcut because there is a lot of money flowing in. But if you are in it to win it and in it for the long term, build a foundation for a lasting business. Keep iterating and pivoting and you’ll find your path to success.
Watch the full video recording for Kira Noodleman’s advice on the following questions:
- How do investors see the market potential for blockchain?
- How many blockchain companies are there and which ones have taken off?
- Which blockchain application do you think is the most promising?
- How can startups get noticed by investors?
- Any advice to female entrepreneurs who are fundraising the first time?
Find our upcoming Startupedia VC Connect Q&A Webinar here, startupedia.info/vcconnect/.