TMT Investments
Igor Shoifot, left, and Julian Zegelman, partners in venture capital firm TMT Investments.
- Traditional venture capital firms are trying to get a piece of the cryptocurrency action.
- One such firm, TMT Investments, is launching a new fund to invest in startups focused on blockchain technology before they hold initial coin offerings.
- The partners are pitching themselves as the adults in the room who can offer expertise to technically talented but inexperienced founders.
The finance world is going crazy for all things related to cryptocurrencies.
Bitcoin is soaring to ever-greater highs. And earlier this year, the amount of money raised by startups via initial coin offerings, a basically unregulated form of fundraising involving the issuance of new digital currencies, surpassed the amount of money raised by early-stage internet companies via traditional venture capital funding.
Now, some traditional venture capital firms want to get a piece of the action.
Among them is TMT Investments, a tech-focused firm with $70 million under management that has previously invested in companies including recruitment analytics firm Gild, cloud storage firm Backblaze, and ecommerce startup Wanelo. TMT is now branching out into the cryptocurrency space. On Wednesday, it's announcing a new $60 million fund that will invest explicitly in firms that focus on blockchains, the digital ledger technology that underlies bitcoin, ether, and other similar cybercurrencies.
In a call with Business Insider, partners Igor Shoifot and Julian Zegelman outlined their sales pitch. They're essentially trying to be the adults in the room - even if they wouldn't exactly put it like that.
The TMT Crypto Fund wants to help 'brilliant technologists'
Blockchain startups are often led by people with incredible technical talent but little in the way of business acumen, experience, or professional contacts, Shoifot and Zegelman argued. The companies won't gain any of that experience or those contacts from the anonymous investors who provide them funding through an initial coin offering, or ICO. But they are things that TMT can offer, they said.
"The fact that someone's a brilliant technologist means nothing about that person as a great business person," Shoifot said.
TMT plans to invest in blockchain startups in the traditional venture capital fashion - offering cash in return for equity, before any potential ICO.
"What we want to do is start helping these companies in [the] pre-ICO and pre-pre-ICO period," said Shoifot. "[Teach them] what a startup is, what business is, how to build an actual business, not just a technological dream."
But in a twist, TMT's fund will have a cryptocurrency component to it. Of the fund's $60 million total, $45 million will come from traditional investors, or limited partners. Some of that amount has already been committed, Zegelman said. TMT plans to raise the other $15 million by selling its own cybercurrency tokens to outside investors. Those investors could then potentially buy and sell those tokens on public exchanges.
Over the last few months, there has been confusion and debate about whether ICOs and the sale of crypto-tokens should be regulated like sales of stock, rather than be subject to basically no rules. At least with its particular planned cybercurrency, TMT plans for it to be treated like a traditional security that would be sold only to officially accredited investors. Unlike the case with the typical ICO startup, that stance would allow TMT to know the names of its investors.
"It would be a fully compliant security token," Zegelman said.
Venture capital is waking up to cryptocurrencies
Other VCs are also feeling the lure of cryptocurrencies - and fear the potential downside if they miss the boat.
"This is going to turn arrogant venture capitalists on their heads," Mangrove Capital Partners partner Michael Jackson recently told The Financial Times. "Venture capitalists are going to have to enter into the ICO game to prove their value to companies."
Some venture capitalists are getting involved in the space indirectly. Sequoia, Andreeseen Horowitz, and Union Square Ventures - three high-profile tech investment firms - have all invested in Polychain Capital, a "hedge fund" that invests in blockchain and cryptocurrency companies.