The development prospects of the blockchain industry are uncertain? Venture capital is cautious

As investment flows into the fintech sector continue to climb, investors are becoming more cautious about which fintech startups they choose to invest in, including those focused on bitcoin and blockchain.

“Investors are increasingly recognizing that fintech is a specialized space,” said加拉克•乔班普特拉, founding partner at Future Perfect Ventures. “So in this regard, investors do need extra time to understand, and the regulatory environment is uncertain. We have to invest in entrepreneurs and companies that understand this and have the expertise and patience.”

This hesitation exists among both pure venture capitalists and corporate investors.

According to a report released by CB Insights in March, global investment in fintech startups reached an all-time high of $13.8 billion, a significant increase of 106% compared to $6.7 billion in 2014.

Last year, blockchain and Bitcoin startups received a record $474 million in total investment, and for the first time, Bitcoin and blockchain startups successfully transitioned to Series C funding.

Matthew Wong, who helped write the CB Insights report, said the blockchain industry will continue to receive large investments in 2016. However, he believes that investors may turn their attention to broader applications such as fraud prevention and regulatory compliance rather than bitcoin mining and bitcoin wallet startups.

Investors are no longer naive

The rise in large rounds of $50 million in 2015, combined with a decline in investment activity in the fourth quarter of 2015, suggests that investors are becoming more selective and are more willing to put large amounts of money into more mature business models and less willing to invest in use cases that are still in the theoretical stage.

This change in investors, who are becoming more discerning, suggests some shifts in the future of the overcrowded fintech space.

"The fintech sector is getting hotter and hotter, and because of this, early-stage startups may find it increasingly difficult to raise funds. In addition, there is another reason, that is, the number of startups invested in this field is inversely proportional to the actual development results they have achieved. That is to say, although the number of startups is increasing, so far we still haven't seen many major breakthroughs in this field, which is inconsistent with our expectations."

Long-term strategy

CB Insights devotes an entire section of its report to analyzing the hype surrounding blockchain, and the authors suggest that investors looking for short-term success in this space may be disappointed.

Fintech requires a long-term approach.

“There are a lot of companies that have raised multiple rounds of funding and increased their valuations, but investors or acquirers don’t buy into it,” said文尼•林厄姆, Civic’s chief executive.

Early investors, like Jobanputra, are wary of valuations, and they carefully weigh whether the companies have the ability to reach those valuations, because overvaluation reduces exit opportunities, Jobanputra said.

According to First Data, although there were some IPOs and acquisitions in the fintech sector in 2015, 2015 was the year with the fewest IPOs in the fintech industry, with only 28.

“A lot of people invest a million here, a million there, and lose it all,” said彼得•奥利尼克, who leads the cards and payments practice at Carlisle & Gallagher Consulting Group. He added:

“These people are willing to make some bad bets because they want to believe that there will always be a good one in the mix.”

How should the blockchain industry adjust itself?

In short, it can be seen that investors today will conduct more rigorous investigations before investing in fintech companies.

However, investors are becoming increasingly hesitant to look for investment opportunities in fintech startups, because these fintech startups, which originally came out shouting "disruption!", are now also beginning to work closely with traditional financial institutions.

This is especially true for Bitcoin and blockchain-related startups.

Bitcoin and blockchain startups have a tough time dealing with the regulatory environment, but the most successful startups in the space have built active compliance programs and worked with traditional institutions.

“It’s not easy to disrupt any industry where there’s a large legacy system,” Jobanputra said. “Larger companies tend to have ample capital and won’t give up market share easily.”

Good candidates for blockchain startups are industries that are “paper- and time-intensive,” Jobanputra said. For example, mortgage origination or insurance could be a good option, the latter of which is becoming increasingly popular.

Another approach, Lingham said, is to create a business model that doesn't just attract consumers away from traditional services, but taps into new consumer groups to increase market share.

Will the popularity of the blockchain industry fade?

While blockchain remains a hot topic, most investment last year went into startups working in the lending industry, and this year the focus may shift again to the insurance industry, Wong said.

These are all indicative of broader VC investment activity overall, Wong said. “Fintech is not immune to this.”

Wong predicts that there will be continued consolidation among fintech startups, but fintech still stands out in terms of investment, with 19 different private companies with market valuations of more than $1 billion, accounting for 12% of the total valuation of the 155 companies.

It’s not just the money itself that is being redirected, the sources of investment are also changing. Corporates are also starting to invest in fintech startups.

The momentum of corporate investment in fintech companies is particularly prevalent in Asia. Alibaba, Tencent and Rakuten are not only building their own financial services, but also funding fintech startups. According to the report, 40% of all financial transactions for fintech startups in Asia were participated by corporates.

But startups will continue to outsource R&D work for companies.

Olynyk said:

“From what we’ve seen from multiple fintech companies we’ve talked to, they’ve all been trying to build one or two blockchain-based prototypes. The company is completely open to any ideas for blockchain-based use cases.”

While the momentum in corporate investment won’t crowd out pure VC investment, it could lead to a contraction in fintech investment as banks invest in incubator and accelerator programs, band together to form alliances, and build technology in-house.

Original article: http://www.coindesk.com/bitcoin-and-blockchain-startups-not-immune-from-selective-investors/
By Bailey Reutzel
Translator: printemps
Editor: printemps
Source (translation): Babbitt Information (http://www.8btc.com/selective-investors-startup)