Chinese venture capital farms are giving another shot at blockchain thanks to China’s central government policy deemed to spur blockchain adoption.
The year of 2018 was undoubtedly a harsh year for Chinese VCs leveraging blockchain with close to 90% being forced to leave the market. And with the Chinese government pushing for greater blockchain usage, most of these VCs are looking at possibilities of market re-entry.
Chinese VCs are finding it easier to re-enter the market thanks to the ease of raising money. Chinese financial data tracker 01Caijing reported that Chinese blockchain startups raised $368 million via 71 funding deals during the 1st half of 2019.
For instance, Kenetic, a blockchain VC started in 2016, and based in Hong Kong is currently on track to close an eight-figure funding deal. Another blockchain VC backed by the NEO crypto project and termed Neo Global Capital has since June 2019 raised second funding worth about $50 million.
With the intense funding ongoing, VCs firms are moving away from equity ownership in startups and are currently focusing on other areas such as secondary trading and bitcoin mining. An example is Sora Ventures, which entered the secondary trading market earlier this year, becoming Asia’s leading investment capital firm dedicated to blockchain technology and digital asset.
The firm has diversified its trading activities to include a swap-a feature that is synonymous with major cryptocurrencies. Sora Ventures founder and managing partner Jason Fang stated that the features take up 20% of its assets under management.
Fundamental Labs, the firm behind Coinbase, Binance, and Canaan Creative, has invested $44 million in bitcoin miners in May that could see bitcoin network’s hash rate increase by at least 1,000 PETA hashes per second (PH/s).
Another blockchain VC Parallel Ventures founded by Yizhou Zhu also invested heavily in bitcoin mining equipment in 2018. The investment worth close to $15 million boasts a computing power to about 300 PH/s.
While there has been an increase in VCs blockchain funding, the number of funding deals have dropped by 67% from 2018 with a 47% fall in deal volume. According to Fundamental Labs managing partner Howard Yuan, less than 10% of blockchain VC initiated in 2018 are currently in existence today. Out of 1,000 early-stage investment funds formed in 2018, only 20 to 30 blockchain venture funds are now in existence today.
Many of the Venture Capitals that have died off were established by blockchain veterans who have shifted back to mining, trading, and operating exchanges. Nonetheless, the increase of blockchain VCs re-entering the market is a positive sign for cryptocurrency enthusiasts.