Bitcoin Venture Era
The Bitcoin ecosystem will develop its venture capital. And it will be as an activist for libertarian causes as Silicon Valley’s capital is for progressive ones.
Today few venture bets are being made by Bitcoiners despite the large amounts of capital they control. Most believe successful investments would still underperform BTC; HODLing has a better ROI. This is bound to change as the market cap keeps growing.
If Bitcoin is to develop its economy, it will need some form of high-risk capital. Sooner or later, we will see the first VC fund or an AngelList syndicate denominated in BTC. I.e., the managing partners only receive carry if they return more bitcoins than they raised.
There are already hedge funds operating this way. For example, Adamant Capital. Other examples are the early bitcoin-denominated stock markets such as Havelock, GLBSE, MPEX, and a fund of funds, Bixin. But trading differs from venture capital. VCs, take long-term positions compared to traders. They must find investments that will outperform BTC over 5 years. Not 5 weeks or 5 days. It is not surprising we have not seen them yet. We will see them because of two functions driven by the growing market cap.
Slowing of BTC’s price growth in relative terms
The growing size of the investment opportunity in companies charging their fees in BTC or denominated in BTC. Several examples of such businesses include exchanges, crypto-lending, etc. Even if their fees are charged in USD, the number of dollars they get correlates with BTC's price.
Activist capital
The Venture Era of Bitcoin will have social implications. Allocating capital is a form of influence often used to further ideological causes. Silicon Valley dominates the venture capital market today. Silicon Valley is mainly progressive, and so is VC. Many firms seek to invest in startups working on global warming. They also often push for gender and racial diversity on boards of directors. Funding a military-oriented startup would almost certainly limit one’s ability to participate in many other rounds.
It is reasonable to expect similar dynamics to emerge in the Bitcoin VC market. Investors will value libertarian causes, such as protecting personal freedoms, as much as Silicon Valley VCs value progressive ones.
Thanks to Mattia Gagliardi, Tuur Demeester, PlanB, Ken Seiff, and Nic Carter for reading this draft.
Illustration: Livija Daudze; editing: Peter Cooper
This post was also published as a tweetstorm.