In normal times, it is not an easy task to secure start-up capital for startups that use blockchains, but in the face of a raging pandemic, it is really not an easy task. Recently, private investors are resentful of agreements that emerge to preserve working capital in turbulent economic times. Fortunately, governments and similar organizations filled the gaps.
Richard Vitico, founder of altFINS, a startup that allows cryptocurrency investors to verify, analyze and trade digital assets on exchanges, told Cointelegraph that he had an investor to secure the development and launch of the platform’s financing, “but then Covid got involved. “The investor, who suffered from liquidity problems in the primary real estate business, had already withdrawn from the agreement a few days before the contract was signed.
Slovakia provides seed financing
In the end, altFINS managed to find new financing through the venture capital firm Crowdberry, which has entered into a partnership with the Slovak government’s sovereign wealth fund, the Slovak investment holding company. Some authorities seem to recognize that “start-up support is an important milestone in economic development, and that this will ultimately affect the pace of economic growth,” Vitico told Cointelegraph.
Of course, there are trade-offs to boot. Fetico said Crowdberry’s valuation of AltFINS was 7% lower than the previous abandoned agreement, but that this was not so much due to private funds, but public as it was due to disruptions caused by the pandemic. Nevertheless, the start-up raised $ 1 million in capital, twice as much as First Venture Capital Company had offered.
Jean-Marc Boyle, senior partner at LeadBlock Partners, a venture capital firm specializing in European blockchain startups, told Cointelegraph. “Public funding in times of crisis is a big plus. He added:
“This applies to the entire boot system, not just the blockchain system. I think public and private capital complement each other in the way of financing a start-up. In addition to support related to COVID, government capital is currently a catalyst for increasing early-stage investment in Blockchain startups. ”
Speaking about venture capital deals in general, Michel Nesbauer, partner at crowdfunding platform Crowdberry, told Cointelegraph, “The Covid-19 crisis has accelerated the withdrawal of traditional venture capital from more risky stages [financing] or new deals.” He added that this opened up opportunities for those who invest in public capital and private institutions. “We are seeing an increasing influx of deals from companies that had bids from traditional venture capitalists that were suspended or withdrawn after the outbreak.”
The current trend?
Fetico told Cointelegraph that he expects to see more state-funded venture capital firms working with blockchain startups. “This is a steady trend in Europe,” not just Central and Eastern Europe, as recently reported. According to him, for example, the European Innovation Council of the European Commission allocates significant money to start-ups, including in Western Europe.
But the move towards state-funded venture capital firms is less pronounced in the United States, where venture capital funds have existed for longer, more connected and more capitalized. “Various programs are designed to support early investment in Europe,” said Vitico. In the United States, things may be different because they have a larger investment capital infrastructure. “As a general rule, we see that less developed capital markets such as Central and Eastern Europe are more likely to be driven by public capital,” Nespor added. This is largely due to the lack of private capital appetite for venture capital investments with risk and return in these countries.
The idea is to “support projects like ours,” Vitico added, warning that “this is not free money.” It is a capital allocation that weakens the founders’ capital, and the platform and its general partners expect a positive return on investment.
Government-funded venture capital firms demand more attention and transparency. “They can ask for accounts at any time,” Vitico said. For example, they can review contracts with external startup contractors, and “they can also go to offices without warning and view documents.” The privately financed venture capital firm also expects additional quarterly reports, but overall it is not intrusive.