Blockchain Technology Plus Venture Capital Equals Boston's Startup Culture

Venture Capital and Blockchain Technology in Boston’s Startup Culture

From Americaninno.com by Kirill Bensonoff Oct. 9, 2018

When people think of Boston, several things typically come to mind: cravings for clam chowder, the iconic Fenway Park, and the exaggerated “BAston” pronunciation from strangers. Lately, the city that spawned companies as diverse as Gillette and DraftKings is becoming known for its vibrant startup culture that’s launching dozens of new companies each year.

This is not surprising.

Our city has twice been named the top startup community in the U.S. by the “Innovation that Matters” report compiled by the organization 1776 and the U.S. Chamber of Commerce Foundation.

This fact is not lost on entrepreneurs. According to The Boston Globe, 1,869 startups are operating in Boston, and those numbers continue to increase as our venture capital scene becomes more competitive with other startup hubs including San Francisco and New York. In terms of actual investment dollars, San Francisco leads the nation, but Bloomberg’s assessment of regional startup investment found that Boston places near the top of the list in each of the last several years. This year, Boston’s venture capital initiatives jumped 15%, surpassing New York City for second place in the national rankings.

In the past, the city’s prominent universities served as a launching pad for some of the most famous platforms in the world, but those businesses typically found their way to other cities once they became popular. For instance, Facebook, which began in 2004 in Mark Zuckerberg’s Harvard dorm room, and Dropbox, founded by Drew Houston while he was studying at MIT, both ultimately moved to San Francisco.

Now, the combination of available venture capital and the innovative ethos promulgated by Boston’s universities is encouraging companies to stay. Therefore, as the next wave of innovation is preparing for launch, Boston is uniquely suited to meet the new demand.

The Cryptocurrency & Blockchain Movement

Just like internet startups were on the precipice of mass adoption more than two decades ago, blockchain technology is at the forefront of the innovation curve. In addition to receiving significant investment and attention from companies like Microsoft and IBM, hundreds of startups are building new platforms to meet the demands of the decentralized economy.

In 2018, nearly 700 new blockchain startups launched through Initial Coin Offerings (ICOs). Collectively, these companies have raised $17.5 billion this year, which is more than triple the amount from the previous two years.

Not to be left on the sidelines, several prominent venture capitalists have picked up on this movement. Andreessen Horowitz launched a $300 million venture capital focused on blockchain startups, Tim Draper has committed a similar amount to various ICOs, and Sequoia Capital prominently entered the market last year.

At this year’s Boston Blockchain Week, local venture capital firm Pillar asserted themselves as the de facto financing arm of Boston’s blockchain scene. In an event roundup, Pillar encouraged ICOs looking for funding to “Call Pillar first, obviously.”

Venture Capital Streams

In many ways, the ICO model was meant to disrupt traditional capital raising methods including venture capital initiatives.

Instead, venture capital and ICOs are operating in tandem with one another. In May, Bloomberg observed, “While ICOs were supposed to disrupt venture capital, such funding in blockchain-based companies is surging, with startups raising $434 million since December, the most ever in a three-month period.”

In general, this seems to be a boom for both industries. Venture capital firms are finding fresh relevance and entrepreneurs are afforded another opportunity to finance their platforms.

The Challenges of Change

The ICO movement isn’t without its detractions.

For starters, this novel fundraising mechanism remains in a state of regulatory limbo. Although the SEC has decided that Bitcoin and Ether, the two most popular cryptocurrencies, should not be regulated as securities, there is a broad expectation that some ICOs will eventually be classified as such.

In short, VCs are participating in a game in which some of the rules are still being written.

This ambiguity is illustrative of the broad crypto movement. It’s an industry under construction, and it can change swiftly. Venture capital firms will be tasked with keeping up with this rapid innovation and the emerging legal framework that accompanies its novelty.

Boston & The Blockchain

While blockchain sentiment can fluctuate wildly, it’s evident that the decentralized ecosystem is not going away any time soon.

Many describe the blockchain economy as the third iteration of the internet, which places tremendous scale and opportunity in the industry. Of course, like any burgeoning industry, there are likely to be an abundance of failures, and blockchain prognosticators have indicated as much.

Last October, Ethereum co-founder, Vitalik Buterin, told a crowd at the ETHWaterloo Hackathon in Canada that “It is an established fact that ninety percent of startups fail. And it should also be an established fact that 90 percent of these ERC20s on CoinMarketCap are going to go to zero.”

Therefore, risk management and market maturation become critical metrics for venture capitalists.

In Boston, the prominence of blockchain technology and the emergence of a dynamic startup culture are bound to coalesce. As the first generation of blockchain platforms begin emerging out of Harvard and MIT, it’s less likely that they will flee to the other coast. Boston is offering everything we need.

Source: https://www.americaninno.com/boston/from-the-community-boston/venture-capital-and-blockchain-technology-in-bostons-startup-culture/