Time for LPs and VCs to wake up to Crypto — a step-by-step guide
- A step-by-step guide for institutional investors investing in crypto-networks.
- Our article series alleviates the confusion surrounding crypto.
Institutional investors have a fiduciary responsibility to understand the funds and assets that they invest in, underwrite the risks, and conduct proper due diligence.
Crypto is a unique space in that there is currently little consensus on what crypto really “means”, how projects should be evaluated and what crypto-assets are worth. Besides that, there is a degree of obscurity on the best investment strategies, fund structures, and legal handling.
If a potential capital allocator is to ask various crypto “experts” the same set of simple questions today, they are likely to get a wide variety of answers. Ultimately, this increases the confusion and lack of confidence when making an investment in this space.
Investors want to back innovation, however, they desire simplicity. Investors do not enter worlds of mystery and obscurity.
Establishing Standards
In a series of articles, we plan to tackle these issues by crafting a step-by-step beginners guide for investors considering or curious about introducing blockchain and cryptocurrency to their fund’s strategy.
The structure of the article series is inspired by the article we published in February where we dove into the 5 reasons why “traditional” tech venture capitalists (VCs) are reluctant to enter the crypto space. If you haven’t read it yet, be sure to.
After we published that article, we were surprised by the response from some blockchain-specialised VCs, sharing with us similar problems they have been facing when dealing with prospective limited partners (LPs).
It is in this light we hope that the series will appeal to not only “traditional” tech VC investors, but also help blockchain VCs with their LP scouting and due diligence processes.
While we understand the topics we will cover may not address all of the challenges you will face through your journey, we do hope it helps you build a solid, foundational, understanding.
The Article Series
Over the course of the next few months, we’ll be answering the following key questions to help get you on your way to understanding and executing on crypto:
1. Overcoming Scepticism with Education
- Why is it blockchain ̶n̶o̶t̶ and crypto?
- What are the benefits of a crypto-network over existing businesses?
- Why should I consider investing in this today if “no one” is using it yet?
2. Building the Right Investment Thesis
- Which success factors should I be looking at when analysing a crypto-network and/or crypto-enabled businesses?
- What does a crypto-enabled future look like (end-state)?
- What do the next 5-10 years look like?
3. Choosing the Right Fund Structure
- As a “traditional” VC, should I consider investing in other funds (i.e. becoming an LP)? How do I decide who to invest in?
- As a GP, which is better, a venture capital fund structure or hedge fund structure?
- Which service providers offer me institutional-grade quality assurances e.g. custody?
4. Setting up a Market Research Division
- What are the best resources to keep me up to date with the news?
- Which service providers offer the best market analysis and research (paid and unpaid)?
- Which investors should I be following and where are the best places to exchange research and deal-flow (offline and online)?
5. Conducting Due Diligence
- How should I be thinking about valuation and exit?
- What must I consider before conducting legal due diligence?
6. Post-investment support and monitoring
- As a GP, what can I do to help support crypto-entrepreneurs and the crypto-networks we are backing?
- As a GP, which type of service providers should I look to work with?
Why are we doing this?
At Saxon Advisors, we have a strong conviction that the world needs cryptocurrency and blockchain to rebuild many of the faulty foundations of the digital economy.
It is with this conviction why we see great benefit in doing “our part” for the community as we believe it can help push the industry forward towards institutionalisation.
We encourage any funds that have a unique insight to please share their learnings with us. We would like this effort to be seen in the same light as an ‘open-source’ project, bolstered by a hivemind of investment professionals. So, let's work together to tackle the same problems for the betterment of the community.
Want to Read More…
If you’ve enjoyed this post please email to a friend or share through social. To stay up to date on news from us you can follow me on Twitter.
So far we’ve covered:
Camron Miraftab is a Partner at Saxon Advisors, a London-based corporate finance boutique that specialises in crypto and blockchain. This post should not be considered as investment advice.
