How Come VCs are Missing the Blockchain Epoch?

  • VCs not Investing in Blockchain: VC investment in blockchain and Bitcoin companies hit a new low in number of financed companies. While the total sum of investment was relatively high, half of it came from financial institutions and tech giants rather than VCs.
  • But Banks & Tech Corporations Do: Microsoft, Intel and Amazon, together with top financial institutions such as Bank of America and Citigroup are presenting new blockchain solutions to developers, but the VCs are still lagging behind them in terms of investment and involvement in the industry.  
  • Exceptions: Lightspeed, Union Square, and Andreessen Horowitz each hold an average of five portfolio companies in the blockchain and bitcoin space.
  • ICO Storm: ICOs are exploding, bringing in $1.73 billion dollars since the beginning of 2017, five times the total capital raised by ICOs by the end of 2016.
  • Fight or Flight: VCs are afraid to jump into blockchain investment because of the competitive threat ICOs pose; because of heavy regulation, due to treating crypto tokens as securities; because of too many bankruptcies and too few success stories; inability to create monopolies; Blockchain’s lack of scalability; and because of the inability to separate Blockchain infrastructure from the shady aspects of Bitcoin.

Blockchain technology has been a buzz word for quite some time, yet it is Terra Incognita for most industry leaders, and is a space that still suffers from underinvestment. As the black swan of the tech world, blockchain hasn’t managed to acquire the place other buzz-related technologies, such as self-driving cars or A.I., acquired long ago. Associated with the high volatility of Bitcoin, and some of the shady activities that have exploited the digital currency, blockchain is still raising too many question marks in the eyes of the VCs, the same people who usually pioneer investment in revolutionary innovations.

But there are other possible reasons for the lack of Blockchain support by VCs. A major force behind VC objection to blockchain technology is called ICO, or Initial Coin Offering. ICOs are a blockchain, token-based fundraising alternative that is quickly becoming popular, making VCs and their traditional, slow, and sometimes heavily taxing process completely redundant. ICOs not only simplify the investment process, but also provide ways for startups to share equity and other benefits with their investors, their users, suppliers, and the entire community around them. In that light, ICOs are filling the financing gap that VCs and other investors are leaving behind.

So far, 2017 is the breakthrough year for ICOs as $1.73 billion has been raised by startups using token sales, and ICO fundraising is forecasted to reach $1.8 billion by October. Notable ICOs include those of Tezos ($208M), EOS.IO ($200M), Bancor ($153M), and Status ($95M), as well as about 60 token sales in total. Have the investors made a profit? It depends, but the total market cap for all Altcoins (Cryptocurrency excluding Bitcoin) has risen from $2.2B on January 1st to roughly $71B yesterday. This is an increase of over 3200%, so yes, some investors are definitely happy.

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But Blockchain technology extends way beyond ICOs and even digital coins. Leaving currency aside, blockchain turned out to be a viable system of value sharing with no need for a trusted third party, such as a bank, or any centralized system. Blockchain can be used as a trusted digital ledger for an infinite selection of applications: it can be used as the infrastructure of a digital wallet, a voting system, or a platform that authenticates identity, ownership or certification, or certifies the traces of a supply chain. Microsoft and Intel have developed their blockchain frameworks for enterprises and financial institutions such as Citigroup and Bank of America has been investing in blockchain startups.

Yet VCs are not buying. Is it moral bias? Fear from the impact of ICOs? Seeing something the others don’t or simply “staying behind the curve”? It’s difficult to tell. Fact is, VCs are not aligning behind blockchain, leaving a vacuum that quickly fills up while posting possibly the biggest gamble for the future of their own ventures.

How alienated are VCs from the blockchain industry? According to a recent study by CB Insights, traditional equity-based investment (non-ICO) in blockchain companies hit in the second quarter of 2017 their lowest point since 2013, to 16 financing rounds. However, these 16 rounds totaled in $232 million, which was actually as high as the entire VC investment in self driving cars in the entire first half of the year.

But VCs were just a small part of that picture. Almost half ($107 million) of the VC-based quarterly funding for blockchain companies went to the banking consortium R3, which was actually funded by the largest financial institutions such as Bank of America, Citigroup, Barclays, Credit Suisse, HSBC and tech giants such as Intel. Another $40 million went to the Bitcoin-based digital wallet Blockchain, from cryptocurrency-oriented investors such as Digital Currency Group, and mainstream VCs such as Lightspeed and Mosaic.

As the graph below shows, top VCs are hardly in the blockchain game, hesitant to invest in more than one or two companies per quarter altogether around blockchain technology. Only a portion invested in more than one company in the space in total. Notable VCs Lightspeed, Union Square, and Andreessen Horowitz each hold an average of five portfolio companies in the blockchain and bitcoin space.

So, who are the most dedicated investors in bitcoin and blockchain technology? The leaders are cryptocurrency-dedicated funds and hedge funds such as Digital Currency Group, Blockchain Capital, Pantera, Fenbushi Capital and Future Perfect. They are joined by a small group of innovative VCs ,managed by partners who are keen to cryptocurrencies such as Marc Andreessen (Andreessen Horowitz), Fred Wilson (Union Square), and Tim Draper (Draper Associates).

Blockchain is not waiting for VCs to enter the game. It is exploding. Here are 3 major signals for this:

1.ICOs are exploding: In the meantime, it seems like everyone but VCs have joined the blockchain party. The ICOs were the ones who took the bigger bulk of business press attention in the second quarter, raising about $750 million for 60 companies. However, VCs and other institutional investors were not among the investors, as long as ICOs are not regulated and are outside the charter of investment given to general partners by their limited partners.

2.Cryptocurrency, not just Bitcoin, is experiencing great momentum. The graph below tells the story. Bitcoin is barely the whole picture. Other blockchain-based cryptocurrencies such as Ethereum and Ripple are on the rise. This graph shows the total market capitalization for the top seven cryptocurrencies excluding Bitcoin:

Here, Ethereum and Ripple can be seen gaining more and more market share of the entire cryptocurrency market:

3.Enterprises are pouring in: Technology corporations and financial institutions didn’t wait for the VCs to come and adopted their solutions for blockchain-based decentralized networks. Among tech giants, leaders Microsoft and Intel have been pushing blockchain agendas for internal use among their customers, which are mainly big companies. Earlier this week, Intel and Microsoft joined forces to launch Coco, a blockchain framework for business that processes about 1,600 transactions per second, 1000X more than comparable blockchain frameworks, such as Ethereum consortium. The new platform uses Ethereum-based smart contracts and enables confidentiality and security over the network with the aid of other distributed ledger systems. With Coco, fashion retailers, for example, might form a blockchain consortium to verify authentic designer merchandise, and track delivery, payments, and stock inventory.

Earlier in 2015, Microsoft announced a cloud-based blockchain developer environment for Azure, its cloud platform. Since then, the company has partnered with numerous blockchain technologies such as HyperLedger Fabric, R3 Corda, Quorum, Chain Core, and BlockApps. Competitor Amazon made a similar move, partnering with blockchain investment firm Digital Currency Group to offer an experimentation environment for startups and developers and partnering with a few blockchain companies on its AWS cloud platform. Google too is in the game, although not directly, investing through its VC in Ripple, the third largest cryptocurrency after Bitcoin and Ethereum, and in Blockchain, a bitcoin wallet startup.

At least two large-scale blockchain projects are permissioned by global enterprises: Open-source project Hyperledger, established by the Linux Foundation, is partnered with Intel, J.P Morgan, SAP, Fujitsu, Accenture, Daimler, and R3. Many of these organizations are also a part of the Ethereum Alliance, with the addition of enterprises such as Microsoft, BBVA, Credit Suisse and more.

So, to sum up, why are VCs so afraid of blockchain? There are quite a few reasons for this:

  • Fear of the impact ICOs have on traditional VC business: VCs have sustained many threats, from family offices taking up innovation, crowdfunding, and private equity firms digging into investing in startups directly. But never has the danger been so clear and imminent as with ICOs. In the long term, ICOs as a funding vehicle for start-ups could rival the traditional VC model. Blockchain tokens issued by start-ups during an ICO are a more liquid asset than any stock in a private company held by VCs. In the current situation, venture capital funds are an illiquid asset class, and they have to wait 7-10 years to realize their results and measure the IRR. But blockchain tokens are immediate and can disclose a company’s momentum in real time. Naturally, VCs would feel suspicious regarding a real-time investment model that challenges them. Also, ICO might bring to the table another new kind of investor, making deals less exclusive than what they used to be, on a scale that crowdfunding hasn’t done yet. On the other hand, this will demand disclosure by startups of performance indicators in the public domain. In that way, GPs and LPs will have a clearer idea of the performance of their portfolio.
  • Inability to separate blockchain as an infrastructure for businesses from Bitcoin and ICOs: Blockchain is a technology concept that can turn over industries. It is a secured and distributed electronic ledger, which allows all transactions – such as payments, loans, and contracts- to be tracked in real time. Bitcoin is a coin that can be used for digital transactions, and ICOs are a method for raising money using the offering of digital coin based tokens. Most VCs will not even go so far as understanding these nuances, not to mention acting rationally upon each of these sectors.
  • Inconvenient Regulation: Last month the SEC declared blockchain tokens to be considered securities, rather than assets. This decision puts the U.S in an inferior position relative to countries such as Switzerland and Singapore that treat blockchain tokens as assets. In order to attract investors and make the ICO process easier, U.S blockchain companies might list in those countries, or else use regulation S and D exemptions with the SEC in order to raise funds. That limits American funding to a mere 99 accredited investors, but does not limit global investments.
  • Few exits and high rate of failure: As an immature discipline, Bitcoin and blockchain companies not only have a poor history of exits, but also a high rate of failure. According to research focused on cryptocurrency investments listed on the Coindesk database, 14% of a total number of VC-backed blockchain and Bitcoin companies went bankrupt or were sold in a fire sale. 85% of them were focused on Bitcoin. The numerous M&As in the business mainly concentrated around Bitcoin exchanges, and do not seem to be related to VCs.
  • Blockchain was unscalable and not business oriented until recently: Putting aside cryptocurrency mining, which consumes a lot of energy, blockchain frameworks are not efficient enough for business applications. Ethereum, for example, processes around 16 transactions per second. However, Microsoft has recently showcased a blockchain framework that processes 1,600 transactions per second.
  • Inability to create a monopoly: Investor Peter Thiel once said that “entrepreneurs starting a company should aim for monopoly and avoid competition.” However, the idea behind blockchain, a decentralized and public network, is intolerant to monopolies.
  • Investing in ICO is still dangerous: In the current situation, direct investment in ICOs entails perils for VCs besides regulation. This includes a complicated process of cashing out (of a digital coin), currency’s high volatility, the high cost of capital in due diligence, and a reduced defensibility in the case of a large investment, according to a paper by Lerer Hippeau investment firm.  

How Can VCs Get Involved with Blockchain?

It might be a little too late for VCs to join the blockchain revolution. The original early stage cherry-picking model of VCs calls for identifying a revolutionary technology before anyone else, rather than jumping on an already moving wagon.

In addition to traditional equity investment in blockchain-oriented companies, VCs can act prudently, starting with new and creative formations. For instance, they can raise blockchain dedicated funds or hedge funds, re-contracting their LPs regarding the new rules of the game, such as raising a part of the fund through ICO or investing in liquidated securities such as cryptocurrency tokens.

Another option is to invest in the economy created by an ICO, or in its token adoption, rather than buying tokens in the ICO itself. This can be done by providing money, real estate,  computing power, guidance or support to developers that are building on top of the blockchain protocol.

* provides unbiased ICO reviews through an objective analysis and rating system, allowing blockchain investors to better understand the ICO market*

Zirra SUN100’s Top VCs

The Top VCs With the Most Portfolio Companies in Start-Up Nation’s $100 Million Club

Carmel Ventures, Vintage Investment Partners, and Marker LLC are among the VCs with the highest concentration of highly valued Israeli startups, according to recent research by Zirra. In order to rank VCs according to their achievements, Zirra, a research firm, used its proprietary algorithm to value Israeli startups, extracting 163 companies that were found to be worth over $100 million. Zirra then ranked the VCs invested in these companies by the size of the portfolio, from highest to the lowest. VCs that were ranked higher have the largest number of startups that are valued above $100 million (without taking into account the exact valuation). Since 2016, Zirra has produced a ranking of Israel’s $100M+ startups in what they call the SUN100 (Start Up Nation $100M club).

VCs that are ranked lower on this list are still considered to have a relatively high concentration of highly valued startups. We mentioned only five or more portfolio companies and excluded all the rest, as most of the investors do have between one to four such companies in their portfolio.

Some major qualifications to the ranking list must be mentioned:

*Not everyone in this list are VCs: Some non-VC financial enterprises are involved in either investing or lending money to the SUN 100 club, including Silicon Valley Bank, which is a bank focused on tech companies, and Viola Credit (formerly Plenus), a lending fund. In addition, OurCrowd is a crowdfunding platform, and Mitsui is a corporate VC. Two VCs in the list have decided not to raise new funds and to focus on their existing portfolios: Gemini Israel Ventures and Genesis Partners.

*Incumbency advantage: Incumbent VCs have a natural advantage over younger VCs for the simple reason that they have been around longer. Most of the VCs listed here were established during the 90’s or the early 2000’s, such as Carmel Ventures which was founded in 2000, or Vintage Investment Partners, which was formed in 2002. Nevertheless, there are some nuances worth noticing: US-based VCs may exist longer than their Israeli counterparts, but their presence in the Israeli startups ecosystem is a newer phenomenon. Bessemer opened its Israeli office only in 2007, and since then has steadily increased its investment in the Israeli market.

*The list is by no means proportional to seniority. Older funds are not necessarily ranked higher, and vice versa.

*Having a lot of $100 million+ valued companies is not always as good as it sounds. A bird in the hand is worth two in the bush. Therefore VCs counts big exits more than large enterprises. After all, what’s the point in having ten companies of $100 million and above if none of them are about to be sold for a higher valuation or go public? Therefore, having four or ten large enterprises in a portfolio is only a part of the big picture, and exits should be taken into account too.

*On the other hand, having a lot of good companies says something about your investment capabilities. And VCs use their portfolio of high valuation companies to help them each time they are raising their next fund.

*More top rated VCs will not necessarily have higher returns. What counts is the share of each portfolio company the VC holds, and their portion of any exit. A significant proportion in a $300 million company that isn’t get bought for years but lacks the growth to go public can end up as a failure in the eyes of a VC.

How Do We Value Companies?

The output of the Zirra Valuation Process is by no means a company’s real valuation. What we do is estimate the real-time valuation, as if the company had a stock traded on the public market, taking into account market momentum and industry characteristics,  while excluding effects such as a tech bubble or PR and marketing campaigns.

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The valuation process involves both Intrinsic and Relative valuation algorithms. The Intrinsic data includes revenue and expense estimations, traffic trajectories, advertising campaigns measurements, investment history and velocity, based on aggregated sources.

In the Relative analysis, data is compared and benchmarked with a database of thousands of companies with correlation to stage, space, size and trajectory. This produces a preliminary set of company ratings and valuation metrics. For example, the algorithm concluded that teams of up to 3 co-founders, each specializing in his/her field of business, technology or marketing leads to growth, whereas teams of 4 or more co-founders carry a higher degree of risk. The machine learning algorithms track the growth of companies, arrive at conclusions independently and dynamically adapt for future analysis.

We then produce a map of competitors based on the data set, rated by the degree of direct competition, its size, threat, and proximity of the shared customer and partner base. Results are sent to relevant experts that comment on both quantitative analytics (scores and metrics) and qualitative analytics (risks, opportunities, competitors).

Where do we get the data from?

Data is extracted from 85 different data sources, regularly updated (daily to weekly). Sources include both open and licensed directories such as the company website, Bloomberg, Linkedin, SimilarWeb and Adwords; It can be “derived data” such as Glassdoor reviews, consumer reviews, sentiment analysis from open web articles; or other data points such as academic researches, stock indexes, and macro-economic parameters.

Companies With Significant Milestones in This Quarter’s list


Taxi ride-hailing app Gett is still Israel’s highest valued private tech company. The company’s status got even better this quarter, as the Israeli automotive ecosystem was upgraded with the acquisition of Mobileye by Intel for $15 billion and the decision by Intel to make Israel its automotive powerhouse. A little less than a year since the $300 million that car maker Volkswagen had put into Gett, there is still no sign of a significant cooperation between the two on a service or a product.

Still, Gett continues to grow in European markets such as Russia and the UK. Gett’s acquisition of Mountainview House Group in the UK gives them control over black cab brands Radio Taxis and Xeta as well as corporate transport platform One Transport. As a result of this acquisition Gett is the biggest taxi app in the UK, with over 11,500, taxis in London alone.

Gett claims to be the market leader in Europe in terms of volume of rides, revenues, and profits. Within Europe the service is currently live only in Russia and the UK, indicating much more room for growth and building on their market lead. Despite talk over five years ago of launching in France and Germany, Gett has not yet entered those markets.

In France, Uber has taken a leading role but met with serious resistance from Taxi drivers and from the French government. German companies MyTaxi and lead in Germany, where Uber has run into issues and been forced to leave all but Berlin and Munich.

According to Zirra research, Russia is Gett’s fastest growing market, in terms of growth in Android and Apple’s app stores, and in terms of web traffic. Still, Gett is not the biggest taxi app in the country. It is overshadowed by Yandex, which accounts for 55% of all taxi rides in Moscow, with Uber and Gett handling about half of the remaining 45% of rides in the city.

In the US, Gett’s initial attempt at penetrating the market has not been as successful as they hoped. Despite strong marketing efforts, attractive fixed fares, and CEO Shahar Waiser moving to New York, the company’s business in the city is not yet profitable and trails behind

In recent months, Gett has been expanding its offerings into delivery, allowing businesses to call for couriers. According to a Zirra survey, a significant number of respondents were open to trying Gett’s delivery service if prices are low enough.

Trax Imaging

Raising $19 million about 2 months ago, Trax imaging joins Amazon in the race to commercialize in-store computer vision tech. Trax allows grocery store employees to capture images of the current retail situation in stores and through deep analytics in Trax’s cloud, insights and reports are delivered to management teams for the purposes of optimizing stocking cycles and tracking products and promotions. Now Trax is arriving to consumers as well, allowing them to find desired products in real time or suggest alternatives. Soon, Trax will be able to compete with Amazon Go’s cashier-less stores. But Trax is not alone in the market, as many established companies are already developing computer vision-based solutions to retail such as IBM, Oracle, SAP, Microsoft, and smaller companies such as Planorama, RetailNext and Symphony Gold. [Read here for Zirra’s full spotlight report on Trax Imaging]

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Kaminario, a developer of a high performance all-flash array storage system, passed the $1 billion valuation this quarter, thanks to a $75 million financial round earlier this year. After a couple of years trying to convince enterprises to deploy more SSD-based storage, EMC started to sell a competing system, ExtremeIO, thus educating the market, and making it large enough for Kaminario’s flash-based product. In 2014 the company achieved a world record in speed of storage and a very high reliability, making it a valid competitor to EMC. 2015 and 2016 were excellent in sales, bringing the company toward $100 million in annual revenue run rate. The company also grew in terms of size, 111% in two years, not bad for a company that was founded in 2008. [Read here for Zirra’s full spotlight report on Kaminario]


Taking advantage of the momentum he has created with selling Mobileye to Intel for $15 billion last month, computer vision scientist Amnon Shashua announced a new $41 million round from unknown investors for another tech company he had founded: OrCam. According to Reuters, the new round that was announced only this weekend values OrCam an $600 million, while Zirra’s valuation algorithm estimates OrCam’s valuation at $569 million. This puts Orcam straight as the 18th highly valued private tech company in Israel, according to Zirra.

OrCam takes the computer vision abilities of a company such as Mobileye’s obstacles detection on the roads to help blind or visually impaired people to “see” better by reading them in headphones what is in front of their eyes. A tiny computer that is attached to the side of a pair of glasses read today’s news or a sign, recognize faces and facial expressions, and helps them to function almost as anyone. All they need to do is activate the visual engine by pointing to the object.

The device has just launched to market in 2016, and according to Shashua will become profitable in 2018 and then will consider a listing in New York.