Blockchain & Cryptocurrency in Boston Tech - Part 2: “One Step At A Time” - What Do the Investors Think?
If you’ve read Part 1 of our series, then the next time you are at a family gathering and your not-so-tech-savvy family member asks, “What is Bitcoin/blockchain/’this magic Internet money’/etc.?” you can be an unofficial guide for their journey into the cryptocurrency-space.
In Part 2 of this series, I spoke with several investors about how they are involved with Boston’s blockchain/cryptocurrency scene.
Investors have to do their due diligence when it comes to companies utilizing new technology, taking one step at a time to see if a company is worth investing in. And Boston’s blockchain/cryptocurrency industry is no different. The technology is still growing and evolving, which makes their job exceptionally challenging to figure out which companies to invest in and ultimately become market leaders.
Over the course of several one-on-one interviews, I found that nearly all of the investors I spoke with originally only had a passing knowledge and/or interest with Bitcoin. Until they, as Flipside Crypto Partner Dave Balter put it, “Fell down the crypto rabbit hole, and once you get in, you can’t get out.”
The Firms/Services Getting Involved
Just last month, Underscore VC led a $1.5M seed investment into Commonwealth Crypto, a startup developing Bitcoin infrastructure. The investment was just one of many blockchain/cryptocurrency companies Underscore VC Co-Founder and Principal Richard Dulude have shown interest in. Dulude helped lead the way for Underscore VC’s investments in Polychain Capital, Ripple, SmartContract.com, and others.
“It’s fundamentally a real way of designing value flows without a centralized medium,” Dulude said. “Bitcoin ignites the brain with how it works. Not only is it an alternative to money, but it’s fascinating with what other applications can be used.”
Underscore VC invests in early-stage startups with a clear vision. When I spoke with Dulude, he mentioned how he is motivated by the technology behind a company, as well as how their infrastructure is working. Commonwealth Crypto appeared to check off these boxes.
“Being an investor who understands this space, I heard about Commonwealth,” said Dulude. “We’ve been looking for something different, and the entrepreneurs behind the company [Sharon Goldberg and Ethan Heilman] had unique qualifications, and are respected thought leaders in this sector.”
Goldstein’s firm primarily focuses on early-stage startups that utilize machine learning, artificial intelligence, and other next-generation technology. Pillar is increasingly spending more energy on blockchain/cryptocurrency and has made several investments in the space.
“Boston has a history of ‘hard tech,’" said Goldstein. "If you look at the industries we're known for, like biotech and cybersecurity, we have the technical skills to become leaders in developing new companies that leverage blockchain. Now's the time to dig in."
In 2016, the firm’s founder came across the Manchester, NH-based startup LBRY that was using blockchain-based technology for content distribution, and became interested in what they are doing. As a result, Goldstein got in contact with the company’s Co-Founder and CEO Jeremy Kauffman, and their conversation quickly kickstarted his own personal interest in the technology. Pillar later led a seed round for LBRY which totaled $500K.
Pillar’s growing regard for blockchain/cryptocurrency has grown as they've begun to develop a community around the tech in Boston. The firm hosts Proof of Drink, a monthly meetup for blockchain founders and enthusiasts at its office near South Station, and recently teamed up with the Boston Blockchain Meetup to host Proof of Steak, a holiday party that drew over 250 people to District Hall. Pillar also created the Boston Crypto Calendar, consolidating events happening around Boston in one central place.
“We’re trying to get as smart as possible, and part of our role is to evangelize this space,” said Goldstein. “When people think of cryptocurrency, they think of Bitcoin or Silk Road. They aren’t thinking of a decentralized web. There are industries that can be turned upside down through this technology.”
Cryptocurrency and blockchain technology are not traditional forms of tech, and Flipside Crypto isn’t a traditional firm for investors. Founded in August 2017 by Dave Balter and career software engineer Jim Myers, Flipside Crypto works more as a service provider for three separate areas within the cryptocurrency/blockchain sector.
Balter became interested in Bitcoin when it was still an underground movement, and while his initial thoughts on it weren’t as serious as they are now, his interest quickly grew.
“Everyday you’re asking, ‘What’s new, what’s changing?’" said Balter. “There’s endless learning in this space, it’s almost a quest for learning, so to speak.”
One of Flipside Crypto’s characteristics is the investment clubs, which Balter described as “a decentralized club,” reflecting on the core value of this sector. The clubs are formed with the idea of providing information for interested investors, like which currencies to invest in. Each club is placed in a tier list based on how much money they are willing to invest; for example, clubs one and two, which have recently closed, have a $100,000 or more investment cap.
However, what sets it apart from a traditional investment fund is that there is a flat rate fee for joining. In addition, club members can change their investment portfolios, and they can liquidate it at any time.
Other services Flipside Crypto provides are the GitHub Crypto Index, where clients can look into what ongoing projects and developments are happening in Boston and the Nodes Firehose, which gives analytical data based on various crypto transactions and trends.
Flipside Crypto’s Partner has been active with various cryptocurrency-themed events across Boston and maintains an optimistic view of what’s to come.
“Boston has a chance to be an epicenter of this innovation space,” said Balter. “There’s a lot of big, ‘home run’ businesses coming out. My prediction is that there is going to be two breakout companies by the end of next year.”
We briefly touched upon Founder Collective’s place in the blockchain/cryptocurrency sector in Boston in Part 1. The firm has been active within this space by not only keeping an eye on the scene but attending various events in Boston. Through these events, the firm has been able to connect with some of the early-stage companies and see what developments could potentially be dominant.
"We’re excited about infrastructure tools that are emerging, but our portfolio companies are also pulling us forward into this space,” said Parul Singh, a principal at Founder Collective. “Civic and YouNow have launched tokens, and we recently invested in two other blockchain companies that are not yet announced. Definitely, watch this space."
Located right in Copley Square is Cosimo Ventures, a firm dedicated to disruptive technology or what Managing Partner Rob Frasca describes as “deep tech.” And what is more disruptive than decentralized networks and currencies?
“As an investor, that is what I am interested in. Boston has a tight-knit community with blockchain and cryptocurrency and it’s expanding,” said Frasca. “I’m excited because we’re seeing incredible deals coming in and who the entrepreneurs are in the area. You have to have some ‘deep tech’ chops in this space, and you got to know what you are doing.”
Cosimo was primarily focused on markets overseas, but has only recently started paying attention to the blockchain and cryptocurrency in the United States, especially in Boston.
Similar to Goldstein’s statement about how this sector feels like the early days of the Internet again, Frasca feels the same way. Frasca founded one of the first venture-backed companies on the Internet, Galt Technologies, and has seen this type of energy before.
“I was at a bookstore and saw all these books about blockchain and crypto and that blew me away,” said Frasca. “I immediately remembered being in Palo Alto in the 90s with my business partner at the time seeing books about the Internet and thinking ‘This is going to be big.’”
Frasca compares the companies in this space, not to the early dot-com companies like Pets.com, but rather the ones that came after it.
“When the Internet 1.0 came out, there wasn’t a lot of real thought on how to solve problems or be sustainable,” he said. “But with the Internet 2.0, companies learned from the mistakes others made began to stick around.”
Many of the blockchain and cryptocurrency-based companies that Cosimo is investing in could not be named due to prior agreements, but Frasca did share what upcoming developments might be coming out of this space.
“What can blockchain do that you it couldn’t do before?” he asks. “I think we’re going to see more supply chains through the blockchain. There are interesting ways to manage the economics with each system and what can be better managed using the blockchain?”
What about Ethereum?
Blockchain and cryptocurrency themselves are the core focuses for many investors in the area, but as stated in Part 1, Ethereum still lacks a wide reach.
Ty Danco, angel investor and former Director of Techstars Boston, is an outspoken fan of the crypto space in Boston. A few startups that were in the accelerator during Danco’s tenure were using blockchain technology, including Voatz, Tive.io, and AirFox.
Danco was drawn into the cryptocurrency world as a passing interest based on his background working in FinTech. He’s the former CEO of investment trading company BuysideFX, as well as the Co-Founder of the Boston FinTech Meetup. However, he believes that out of all the developments and types of currency to come out of this space, Ethereum has a greater chance to succeed.
“As an investor, it’s smarter to invest in Ethereum, as it can exist without a company,” Danco said. “Ethereum is designed to do much more than Bitcoin since it is, at its core, ‘programmable money.’”
Danco pointed out several use cases for Ethereum, including smart contracts for sports organizations.
However, he does recognize how much of an impact Bitcoin has, as he told us about how a rather large investment firm has started taking note of cryptocurrency.
“Fidelity [Investments] started to enable charitable giving with Bitcoin and Ether,” said Danco. “They gave customers the option to locate crypto accounts right from their Fidelity dashboard. When a firm like Fidelity is taking note, the impact cannot be ignored.”
And on a final note, as a former Olympic luge racer himself, Danco told me that the United States Luge Olympic team started taking investments in Bitcoin.
Tune in next week… same blockchain time, same blockchannel
The investors across Boston are the ones keeping the close eye on what kind of companies are going to succeed in this space. As you’ve seen, a few companies were mentioned during the one-on-one interviews.
What about the others? Who else is doing something unique with blockchain/cryptocurrency technology?
That is where Part 3 comes in. We will be briefly profiling various blockchain and cryptocurrency-based startups in the area, discussing how they are using this technology. We will also learn how some of these startups became interested in this space.
Images courtesy of Underscore VC, Pillar, Flipside Crypto, Cosimo Ventures, and Future of Blockchain.