The New York centered Union Square Ventures is now taking a lengthy bet on cryptocurrency, but not like some of the VC peers, it won’t break out on a separate fund to do so.
“We see a lot of people upside to keeping it under the same roof,” according to Albert Wenger, managing partner at Union Square Ventures.
On Monday, competing venture capital firm Andreessen Horowitz made an announcement on the first fund they have ever created that is strictly for cryptocurrency companies.
The company, Union Square Ventures has some pretty big plans to potentially make over a trillion-dollars in profit through a business oriented around blockchain tech. The project will take an expected ten years to complete. However, for all of those plans, there will be no inclusion of a separate fund, as told by one of their top executives.
“we’re not planning to do it,” Albter Wenger, one of the senior managing partners at Union Square Ventures told CNBC. “We see a lot of upsides to keeping it under the same roof.”
The New York-based Venture Capital Firm, named after its 19th -floor office on Broadway which is only blocks from Union Square, has made a recent announcement on the number of cryptocurrency investments, even those in well-known U.S. Exchanges like Coinbase. Wenger also said those companies will be able to learn from other companies non-blockchain oriented as well vice versa.
Just this last Monday, one of the other competing venture capital firms, Andreessen Horowitz made another announcement. It talked about the first-ever company related cryptocurrency fund. The executives reported to CNBC that it’s an “all-weather” fund which they plan on investing into over an extended length of time. All of this is said to happen regardless of the current market conditions.
Union Square Ventures, similar to its West-Coast Peer, is approaching the situation with a long-term perspective of the space even through there is a worsening bear market in cryptocurrency. This firm is focused on investments that Wagner labeled as the “foundational plumbing” stage. For the most part, money is being placed in areas directly supporting technology applications, instead of apps or those use cases on their own.
“Investors are rationally pouring a lot of money into this sector, because I think people are seeing the winning blockchain here might be worth a trillion, or a couple of trillion dollars,” Wenger said. “It’s not at all crazy to think that.” Wenger stated. “It’s not at all crazy to think that.”
Wenger’s remarks where reminiscent of Steve Wozniak, co-founder of Apple, who stated previously this week that blockchain technology is similar to a bubble, where companies will start dropping off like flies, at the same rate and speed as they did in the dot-com era. On the other hand however, he claimed that the risk would pay off for any investors who get in early enough, and intelligently spread their bets around.
“Certainly, for any one particular project there's an extremely high chance it won't work,” Wenger said. “As a result, if it works, the rewards will be very high.”
The new shakedown, specifically for ICOs, has already started. There are more than a thousand cryptocurrency projects that have collected capital through the use of failed Initial Coin Offerings this year, according to the website Coinopsy. The ones that have failed tokens and several scams, have also gained attention from regulators earlier this year, ended up casting a cloud of suspicion over the whole industry, according to Wenger.
“You've had a series of ICOs where investors have purchased at steep discounts — the second it starts trading those investors cash out, they make a handsome return, and someone else is left to hold the bag,”
While Wenger said ICOs are a creative new financing machine, he also stuck to his guns that the method isn’t right for all the blockchains in the industry, exactly like a public stock offering isn’t always the right choice for all companies.
Initial Coin Offerings brought in more than $6.6 billion USD in 2017 while also hitting $9.1 billion USD this year alone. The report is according to research firm Autonomous Next. Another startup in the Cayman Islands, reportedly rose another $4 billion, thereby surpassing the world’s largest ICO on stock exchanges this year. But the total amount raised by a project may not actually matter, stated Wenger.
“The amount you've raised in an ICO or in a traditional way in this space is not going to turn out to be a great predictor of success,” he said. “Very interesting projects are also being pulled off on a lot, lot, lot less money.”
Wenger, also has achieved a Ph.D. in information technology from MIT, owns a personal supply of Bitcoin, but says he is completely aware of the growing number of risks which are involved for retail investors. The cryptocurrency, which Union Square Ventures has also invested, has also fallen more than 60 percent already this year following the incredible rise that spiked at almost $20,000 last year.
“I don't think you should be in the space and say,'I'm only going to hold bitcoin,'” he said. “At the moment, this whole space is a high-risk space, and I don’t think anybody should be investing all of their life savings.”
Relatively speaking to the sector as a whole falling, Wenger stated that there’s a chance, although it’s a small one.
“The stuff that actually works will float to the top,” he said. “It might take a while, but time will tell.”