Investing in Blockchain Startups (Seminar) C4 MaRS Discovery District Toronto 6 2016

STILLMARK

This document is proprietary and confidential.

Investing in Blockchain-based Startups

@AlyseKilleen

June 2016

‣ Very little information exists to support the development of a ma tu re ange l and ven tu re investing community.

‣ Traditional VCs have yet publicly expressed their strategies for evaluating blockchain companies.

2#VentureCash: Blockchain-based StartupsJune 2016 | StillMark Co.

• $1Billion+ Invested

• 200 Firms Investing

By the end of 2015

But still …

Forbes Entrepreneur 6.16.2016

3#VentureCash: Blockchain-based Startups

Article based on opinions shared by Alyse Killeen, Tim Draper, and Pamir Gelenbe, a Partner at Hummingbird Ventures.

June 2016 | StillMark Co.

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!!!!!!Ecosystem!4#VentureCash: Blockchain-based StartupsJune 2016 | StillMark Co.

INVESTING

The distinction between investing vs. gambling is unclear, and the result is many companies over-capita l ized (creat ing unhealthy incentives for teams) while other companies lack the support needed to thrive.

CURRENT CHALLENGE

TODAY’S PRESENTATION


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RISK

SPECULATION GAMBLING We’ll cover a few of the basics necessary for an investment mindset and practice, with specific consideration given to the diligence and thoughtfulness that should be specially applied to blockchain and cryptocurrency startup investing as it differs from other investments.

ABILITY TO MITIGATE RISK

INVESTING

The distinction between investing vs. gambling is unclear, and the result is many companies over-capita l ized (creat ing unhealthy incentives for teams) while other companies lack the support needed to thrive.

CURRENT CHALLENGE

TODAY’S PRESENTATION


!!!!!!Venture!

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RISK

SPECULATION GAMBLING We’ll cover a few of the basics necessary for an investment mindset and practice, with specific consideration given to the diligence and thoughtfulness that should be specially applied to blockchain and cryptocurrency startup investing as it differs from other investments.

ABILITY TO MITIGATE RISK

Investing and accepting venture capital:

A. An expectation and commitment for the Company to create value and monetize that value, with a focus on opportunities for scale in both value creation and monetization (e.g. decreasing incremental costs of service, network effects – the increasing value of the Company product as the user group grows, etc.).

B. Can the Company and Team create value that will be recognized by consumers or enterprise users, and can the Company and Team capture adequate compensation (via data, payment/fees, etc.) from the value they create?

C. Evaluate these two components separately.


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Creating Value vs. Capturing Value

General Principles of Review

Considerations and Diligence

• Pain Point (i.e. the problem, and audience’s awareness) • Proposed Solution • Market • Competition • Critical Timelines

• Product/Solution Development • Capital Needs • Team


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• Growth Projections (Users or Enterprise Sales Pipeline)

• Technical Barriers to Competition

• Time period the protection in expected to last

• Defining Key Metrics (KPIs)

• Current KPIs and the match to investment stage

• KPIs needed to raise the next financing round

Investing in blockchain companies requires special and additional considerations, beyond the generalist basics


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Infrastructure def.: Infrastructure provides a platform for applications. Technology infrastructure generally does not include the operating systems or software above the hardware level except where WANs or cloud are used. Here such transport mechanisms, along with platform or software as a service may be considered infrastructure.

• The Problem: Blockchain core and associated infrastructure is in early development and not comprehensive to serve the needs of existing and future applications; the necessary infrastructure to serve current and future needs is not fully understood. Infrastructure immaturity is delaying app development and scalability.

Application

• The Problem: Many opportunities to address consumer and enterprise problems and pain points. The Company’s problem statement should be tested and evaluated in advance.

• Solutions: Efficiencies vs. New Value• Efficiencies: Cost savings and opportunities to

serve larger markets (and the masses). • New Value: What can now be done just because

blockchain technology exists?


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Venture Dynamics: Application vs. Infrastructure

What is the reliance and dependencies on the core blockchain infrastructure?

A. What is the state and expected progress of bitcoin core, and how does this impact the pace of progress for the Company?

B. What is the ability of the Company to achieve scale with and without development of the core infrastructure?

C. Do the Company’s timelines (product, growth, team, capital needs) match with a realistic timeline for core infrastructure development? Have other scenarios for the pace of core infrastructure development been considered and planed for?

D. What is the risk of the pace of core infrastructure development? What is the cost of this risk?


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Questions unique to blockchain and cryptocurrency: RISK


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How does regulation and the regulatory environments affect the Company’s business?

A. What are the Company’s risks as a result of foreseeable or possible regulatory changes (or lack of change in contentious regulatory environments)?

B. What will the cost of regulatory compliance be for the Company?

C. What is the risk of the pace of core infrastructure development? What is the cost of this risk?

Questions unique to blockchain and cryptocurrency: RISK


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A. Is the Team suited to the challenges and special RISKS of this ecosystem?

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B. Is Executive Leadership building the Company for global breadth in developed and emerging markets?


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‣ Is the Company’s product/service and goals (i.e. the Company’s value proposition) consistent with the Satoshi value proposition?

‣ How will this impact the Company’s ability to form key partnerships and business development? Scalability? Sustainability?


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Venture Dynamics: A connected ecosystem

Investing in a target Company given the intertwined nature of the ecosystem:

A. In traditional angel and venture investing, an investment in one target Company precludes you from investing in that Company’s competitors, and this is a critical component of the investment practice.

B. Given this condition, how do traditional investors select a target Company to invest in from a competitive set of companies?

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Venture Dynamics: A connected ecosystem

‣ What is the impact of an investment on the Company, and on the ecosystem?

STILLMARK

THANK YOU

This document is proprietary and confidential.

@AlyseKilleen


contact: [email protected]

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