NOVUM INSIGHTS REPORT BLOCKCHAIN

Transcription

1 NOVUM INSIGHTS REPORT BLOCKCHAIN

2 Content 1.Executive Summary Methodology 4 2. Investment Activity in Blockchain Investment Activity by Blockchain Application Investment Activity by Blockchain Technology Investment Activity by Geography The Structure of Blockchain Examined The Applications of Blockchain Financial Introduction Analysis- Financial Blockchain Application Space Investor Analysis Financial Blockchain Application Space Application Round up and Conclusion Non- Financial Introduction Analysis Non-Financial Blockchain Application Space Investor Analysis Non-Financial Blockchain Application Space Application Round up and Conclusion Digital Currency Introduction Analysis- Digital Currency Application Space Investor Analysis Digital Currency Application Space Application Round up and Conclusion Investor Insights Top Investor Analysis Investor Takeaways Initial Coin Offerings (ICOs) What is an ICO? Cryptocurrencies ICO, the Disruptor of Venture Capital ICO Investment Analysis Regulating the Wild West of ICOs The Future of ICOs Top 20 Initial Coin Offerings Top 20 Blockchain Companies If Blockchain Disrupts 90 Appendix A Data Collection and Aggregation Methodology 92 REPORT BLOCKCHAIN #2

3 1. Executive Summary Blockchain start-ups are proliferating globally, with the technology becoming one of the most significant areas of interest for venture investors and entrepreneurs. To help understand this trend, Novum Insights has conducted the most extensive review of the sector s start-ups to date. Market participants in finance and beyond are growing in their faith that blockchain, defined as a distributed database which holds a secure and immutable record of transactions, has the ability to transform many areas of information exchange. Blockchain removes the need for intermediaries in financial transactions: increasing payment speeds, reducing costs, and eliminating forgery and censorship of information. The greatest enthusiasts about blockchain believe the technology has the same potential to transform society as the World Wide Web, and booming investment in all things blockchain in the last year indicates there is a growing number of investors that are coming to share this view. Blockchain technologies operate on a digital ledger allowing for a permanent history of transactions and better security of different types of information. This information is ratified by all computers on the network, and so by using consensus, users are better able to trust the information is correct. Given these special characteristics there have been feverage levels of ingenuity by technologists finding new applications for blockchain. Indeed, it is believed the technology has the potential to impact how all industries do business, and so top executives of large corporations, hedge funds, private equity firms and the world s advisory firms have good reason for watching the blockchain market attentively. The data scientists and researchers at Novum Insights have assembled a definitive list of 2138 start-ups which we are tracking in the blockchain space. In this report, we map out how these companies fit into the blockchain ecosystem and help one understand in detail what they are all doing. Funding in blockchain is already over 340% ahead of total funding in 2016, with another Google Search Frequency (Normalized) EXPONENTIAL GROWTH OF SEARCH Interest in Blockchain. The normalized scale of 100 represents peak relative popularity of blockchain as a search term, whereas a score 50% indicates the term was half as popular Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 REPORT BLOCKCHAIN #3

4 quarter to go. At the current pace, with the inclusion of ICO funding, blockchain deals in 2017 should clear the $3bn mark by years end. We have also tracked 973 investors, which have backed blockchain companies, with 826 companies with public investment funding. Part of the excitement around the sector is being driven by a growing awareness of cryptocurrency among investors, which is where blockchain innovation began. Cryptocurrencies like Bitcoin, Ether and Litecoin have boomed in the last year, hitting a market capitalisation of $132bn at time of press. Bitcoin alone has gone up in value 11 times since last year, even as other cryptos have been taking market share away from it. The following chart depicts online search frequencies for blockchain over the last five years. As the diagram clearly highlights, blockchain is a rapidly growing topic of interest for investors and the public alike; a trend that looks likely to continue into 2018 (and beyond). The best-funded traditional blockchain startups are Coinbase, Circle, 21 inc, R and Ripple The report looks in-depth at the 20 bestfunded blockchain start-ups (excluding ICOs, which are compiled into a separate list). Our Top 20 Blockchain Company profiles take a deeper glance into the key company insights and what makes them special to get a better idea of the justification behind their funding. As an offshoot of booming interest in these coins, start-ups have also been turning to cryptocurrency as a highly attractive means of raising funds through so-called initial coin offerings (ICOs), where businesses raise funds in cryptocurrency tokens. Increasingly, young start-ups are tapping the market for these transactions, instead of seeking seed and series A financing. Multi-million-dollar sums are being raised at significant speed, in sales of coins which in the past would have been raised from venture capitalists. The booming cryptocurrency markets have subsequently gifted start-ups with significant funds, and some investors with meaningful returns. At the same time however, many in the sector are raising concerns that the strong performance of ICOs and cryptocurrencies is unsustainable and anticipate a crash. The parallels to the dot-com boom of the 1990s seem irresistible, though for the moment it is a highly exciting bull run (with extreme volatility mixed in). To unpick those companies worth watching, this report will look at those ICOs which are most of note, and analyse the data on more than 650 ICOs in the most extensive look at this hot, new investment trend. In their short time of existence, ICOs have already attracted more than $2.3bn in total capital, and in the first eight months of 2017, ICOs have already raised a staggering $1.84bn, four times that of traditional venture capital investment in blockchain startups ICOs account for all of the top 20 largest ICOs to date, with the biggest ICOs being Filecoin, EOS. Tezos. The report will also analyse all areas where start-ups are innovating in the blockchain space, mapping the start-ups into three overarching blockchain applications under which we have identified 16 technology sectors: Payment Infrastructure, Wallets & Mining, Blockchain Tech Development & Consulting, Banking Infrastructure, Exchanges, Security & Privacy, Mobile & Apps, Internet Services & Platforms, Smart Contracts, Digital Identification, Verifiable Data, Information Exchange, Lending & Investing, Digital Assets & Ownership, Blockchain Literacy, Analysis & News, and Outliers. For each category, we analyse the most significant start-ups and flag what to watch about them. Payment Infrastructure is the best funded sector within blockchain, with companies having raised $512.9m to date. The business to have raised most money in this field is, with other notable companies like Digital Asset and Ripple Digital Currency Group and Blockchain Capital share the top two spots respectively for most money invested and most rounds involved in, with Blockchain Capital involved in 51 rounds worth $445m and Digital Currency Group involved in 89 rounds worth $413.2m. Series A rounds account for most deals with a total of $756.6m invested. The US is the leader in investment capital outflow with $1.3bn invested and also tops capital inflow with $1.35bn. REPORT BLOCKCHAIN #4

5 However, it is important to remember that it remains early days for the development of blockchain as an industry, and there is still a lot of hype surrounding the market, though it seems likely, given the level of investment and technological innovation, that many companies in the sector will indeed go on to create significant value for business and society. For this reason, we think constant data vigilance of the sector is of the utmost importance. Our domain focus and forthcoming data product will provide the best means of understanding all start-up innovation in blockchain and custom curated data deep-dives to unparalleled depths of industry and investment data. We hope you enjoy this report and can derive some valuable insights into blockchain, the technologies and all the companies therein. For this report we have consciously focused on specific technologies, regions, companies, investment rounds and associated investors. For further insights and custom curated deep dives into specific technologies, regions or investment history, to name a few areas, please contact our product team (see contact details at the back of this report). We would love your feedback on what we should be looking at more closely, which sectors deserve more attention, and how we can provide even more interesting insights for your business. If you want to secure the full report, please click on this link. REPORT BLOCKCHAIN #5

6 2. Investment Activity in Blockchain $2,432M There has been a strong uplift in funding for blockchain companies in 2017 so far, with the year seeing more than double raised than in 2016, with one quarter left to run. Much of the recent financing surge is a result of sky rocketing initial coin offerings (ICOs). In fact, traditional venture capital investment in blockchain start-ups has actually lost some momentum in contrast to last year, though large increases in ICO funding have more than covered this downturn. $1M $3M $4M $103M $435M $557M $689M FUNDING FOR BLOCKCHAIN STARTUPS was minimal after bitcoin was first developed in 2008, before surging forward dramatically after 2013 onwards $3,263M Annualized to YE 2017 $2432M YTD YTD $1M $3M $4M $103M $435M $557M $689M $799M 2017 YTD CAPITAL RAISED for Blockchain Start-ups by Year (Venture Capital vs. ICO) REPORT BLOCKCHAIN #6

7 The overall venture funding in blockchain companies has been slightly increasing from 2015 through 2017 to-date (2015: $548m 2016: $591m 2017 YE: ~$700m). However, ICOs have become a huge additive funding mechanism, with > $1.84bn raised already in At the current pace, 2017 will represent over $3.2bn in funding for blockchain companies, including ICOs, a 4.6 times increase from 2016 alone. United States $1,364.4M United Kingdom Ireland Singapore China Canada Japan Hong Kong Israel Germany France Switzerland Russia South Korea Sweden Philippines $170.3M $136.0M $112.7M $95.7M $90.6M $47.0M $42.3M $31.0M $26.5M $24.2M $21.5M $16.0M $15.5M $11.5M $10.1M VENTURE INVESTMENTS Received by Country (Company Headquarters) REPORT BLOCKCHAIN #7

8 The biggest area of activity by a significant margin has been the US, with approaching $1.4bn in funding for start-ups, followed by the UK with $170.3m. Irish start-ups have secured a surprisingly high amount with $136m raised TRACKED BLOCKCHAIN Yearly Founding Count (*includes only companies with recorded funding) Before While it is clear that ICOs have quickly taken the spotlight as a funding mechanism for blockchain start-ups, for analytical clarity this report will first explore traditional investment in-depth before moving on to a breakdown of ICOs in more detail. For this reason, this section will generally exclude ICO related funding. Our analysis shows 2014 was the peak of newly founded companies in the blockchain space. While new companies are still being founded each year, it seems clear that the market has now shifted more towards previously established outfits maturing and raising follow on investment rounds rather than greenfield projects Investment Activity by Blockchain Application Blockchain technology has many applications. For the purpose of this report we have divided the blockchain landscape into three overarching applications: Financial, Non- Financial, and Digital Currency based. Each one of these can in turn be split into smaller sub-applications. REPORT BLOCKCHAIN #8

9 5. Initial Coin Offerings (ICOs) 5.1. What is an ICO? An ICO (initial coin offering) or a token sale is a fundraising tool in which a new cryptocurrency project, typically a blockchain start-up, sells part of its new cryptocurrency tokens for cryptocurrencies of immediate, liquid value, the most notable two being bitcoin and ether, the unit of cryptocurrency used on the Ethereum blockchain. This is typically done over a pre-defined period of a week, a month or in some cases longer. The ICO will typically only sell a portion of the overall cryptocurrency in circulation and the target investment level is typically set as a goal in fiat or other cryptocurrencies. If the ICO is popular and more is raised than the intended goal, it is said to be oversubscribed. Sometimes a cap will be set, and when that cap is reached, the ICO will complete before the defined end-date. ICOs provide a way for cryptocurrency project creators to raise money for their operations, an alternative to turning to traditional venture capital or angel investment. Tokens created in an ICO can easily be traded, much like shares created in an IPO (initial public offering), which traditionally has only been reserved for well-established, respected startup companies. However, unlike shares, tokens created in ICOs do not confer ownership rights and are not regulated or registered with any government organisation, and therefore usually hold no investor protection. The investor in an ICO hopes that the project s success will cause the tokens to raise in value, a premise that gives rise to many speculative actions in the market. $350M $400B Raised Amount (USD) $300M $250M $200M $150M $100M $300B $200B $100B Cryptocurrency Market Cap (USD) $50M $0M $0B Aug 16 Nov 16 Feb 17 May 17 Aug 17 Cryptocurrency Bitcoin Ethereum Classic Litecoin Ripple Bitcoin Cash Etherum NEM Dash Iota NEO CRYPTOCURRENCIES VS. ICOS REPORT BLOCKCHAIN #58

10 subsequently refunding the remainder to its investors. Many parallels have been drawn to the dot-com bubble. With the surge of ICOs, the regulatory bodies across the world are acting to try to deflate the bubble. In the US, the Securities and Exchange Commission (SEC) recently ruled that many digital tokens created in ICOs are essentially securities, as they give ownership rights in virtual companies, therefore, are subject to the same rules and regulations as other securities and need to be registered with the agency. If this is true, this could also force exchanges that trade these tokens to fall under the SEC s jurisdiction. However, before there are practical examples of any rules and regulations being enforced, the market will not react and will find ways around regulations. For one, companies will often use terms, referring to the ICO, such as donation, early access privilege and crowd-sale to avoid comparability with the sale of securities. Many companies that fundraise through ICOs are also set up in jurisdictions that are lax on regulation and taxation, such as Switzerland, Gibraltar, Cayman Islands and Singapore, just to name a few. In some jurisdictions, a company could potentially fundraise millions of US dollars with nothing more than a shell company to back it up with. So far, in these jurisdictions only the Monetary Authority of Singapore (MAS) has announced that it will take action and apply a similar framework to that of the SEC to scrutinise ICOs. The rapid developments of the ICO market mean the status of the sector is changing all the time. At press time there was a regulatory shock with the People s Bank of China (PBoC) outlawing ICOs in China and arguably making all cryptocurrency trading and exchanging activities illegal altogether, using wording that is open for interpretation and requires further clarification or real example of action forbidding transactions in the market. The regulation seems to suggest that the capital raised in previous ICOs must be refunded to investors and those, who do not comply with this, could face severe punishment by law. This harsh regulation in China, which is one of the most active markets both in terms of companies that seek to raise capital through ICOs and investors participating in them, will surely impact the ICO landscape globally. Due to the current set-up of ICOs and the regulatory environment, or lack thereof, there have been many scams in the industry, however the community is becoming more aware of this and has adapted self-governing practices, which help ease this to some extent. This might help avoid outright scams, however the lack of regulation is not the only problem, there is also lack of accountability on the side of the start-up raising money. There is no clear mechanism to keep the company raising the capital true to its mission and opens the possibilities of ineffective usage of funds raised The Future of ICOs The potential of ICOs to disrupt traditional financing of new companies and ideas is huge. Whereas many larger institutional players do not want to be associated with these financing mechanisms yet, as there is a huge reputational risk aspect, which must be mitigated, the shift to adoption will likely happen sooner than one might anticipate, as the technology matures and more comprehensive regulation comes into play. Currently it is hard to judge the success of the ICO market, as the majority of funds have been raised within the last year and it takes at least a year to two years to objectively see the success of a start-up project. Time will only tell, how many companies that have fundraised through ICOs in 2016 and 2017 will have survived, but, at least currently, there is no sign of the market slowing down. One can only speculate the impact of regulation on the market. Will early regulation benefit the long-term health of the market? Will implementing regulation too early and too strictly deflate the bubble or altogether kill the concept? Will this be the case in China with its latest ban on cryptocurrency trading and raising ICOs? Can regulation be implemented in some jurisdictions and not others without REPORT BLOCKCHAIN #64

11 creating a regulatory arbitrage and driving companies to less regulated markets? Will there be a global standard and how could it be enforced? When the regulations come in, will they be backdated to include companies that have already completed their ICOs and hence potentially incur massive fees, as it seems to be the case in China? Whatever the answer, one thing is clear, similarly to the dot-com bubble, most likely there is a market correction coming soon and many companies born from this ongoing boom in ICOs will crash as fast as they have risen, however a handful will rise to the top and stay there, to create the next generation of Googles and Facebooks of this world. REPORT BLOCKCHAIN #65

12 Appendix A: Data Collection and Aggregation Methodology As mentioned in Section 1.1 of the report, we found that no single source of information publicly available was sufficiently complete and accurate. Novum Insights has worked diligently to develop the most comprehensive and up-to-date database of blockchain companies available and has leveraged that throughout this report. One of the first steps in the process is to ensure that we are only tracking and reporting on companies that meet our criteria defined in Section 1.1. Companies that do not meet our criteria have been identified and specifically filtered out of our dataset. Many of the information sources have overlapping (and occasionally contradicting) information, both in terms of company names and attributes. In numerous cases, the company names are slightly different among different sources, which requires a duplication identification and consolidation process. In all cases, we have chosen what we believe to be the most appropriate and latest company names for tracking purposes. A similar process has been developed to identify and address duplicate investment rounds, whether for venture investments or for ICOs. In a few cases, we have determined that some of the source information is incorrect, in which case we have corrected within our own database to ensure the highest possible quality output. Where conflicts exist in terms of total funding or funding amounts for individual rounds, we have done our own research to ascertain and use the correct values. In cases where a single clearly correct result was not obtained, we are using the largest values (either for total funding or for a specific funding round). The final step in the data collection and aggregation process is to perform data enrichment for areas where company or investment round attributes are missing. One key example of this is to populate the country of origin for companies in which this information was lacking from our various sources. This data is accurate at time of publishing, but in the fast-moving world of blockchain there are always new records being set. For this reason, Novum Insights is creating a real-time market monitoring service to keep pace with the everchanging world of blockchain. REPORT BLOCKCHAIN #92