While Initial Coin Offerings (ICOs) have been the dominant method for blockchain startups to raise capital in recent years, a more traditional funding source has quickly emerged onto the scene. As the young and volatile cryptocurrency industry begins to mature, venture capitalists are now beginning to dip their toes in the expansive pool of digital assets and blockchain companies.
Recent data through the first two months of the year suggest that 2018 is on track to becoming a blow out year for venture capital investment in blockchain startups, and that trend does not look to be slowing.
While the Silicon Valley giants, like Andreessen Horowitz, are beginning to invest more heavily in the space, there is another new rapidly growing segment: firms attached to the specific blockchain projects and startups. There are plenty examples, including EOS, NEO, and Binance. Even Coinbase recently announced its plans to launch its own early-stage venture arm.
Included in this category is Pithia, an investment firm with ties to the RChain Cooperative, which is developing a Turing-complete, Byzantine fault-tolerant blockchain platform, enabling developers to write concurrent and infinitely scalable decentralized applications. Pithia’s ultimate mission is to facilitate the end-to-end growth of the blockchain, focusing on the ecosystem around RChain’s performant blockchain. This mission was most recently highlighted with the firm’s investment in lifeID, an open source, blockchain-based identity platform designed to create online and real-world solutions that enable user-controlled and managed identity.
We sat down with Pithia’s CEO, Lawrence Lerner, to get his views on the current blockchain investment landscape and to learn more about how Pithia picks its winners.
SludgeFeed: What exactly is RChain and what makes it the ideal blockchain for building?
Lerner: RChain is a third-generation blockchain platform built from the ground up. The contract language is based on something called mobile process calculi, which is something that is concurrent by design. The language is RHOLang, which is a Scala-like language that allows you to build smart contracts and it is the language that we will be using for the platform. The platform also supports composable namespaces, which allows for multiple public and private namespaces that can be linked off the same chain. This gives us speeds up to 40,000 transactions per second, as well as higher scalability and security because of the way namespace addressing is working.
The platform is still under development, led by a core team of a little over 20 devs right now. The testnet is scheduled for June/July and mainnet at the end of the year. To date, we have hit every milestone and deliverable we’ve set forth.
It looks like you have a significant business development, tech and investment track record that spans decades. What exactly led you to work with Pithia, and how does the firm fit into the RChain ecosystem?
My story in crypto actually began back in the 90s, when I worked with Motorola on defining the company’s smartphone strategy, which was originally an e-commerce plan using the first generation of cryptocurrencies. Fast forward to 2010, I got back into doing work with Bitcoin and blockchain, once that launched a few years later because there were a number of exciting startups. I then moved to Washington state to work with a number of startups, including one that was looking into how to use bitcoin as an efficient form of payment, and another that was building out a point of sale system.
Last summer, I had been working with a number of people locally and around the country in the blockchain space, and was approached to help RChain Cooperative, which is building the RChain platform and ecosystem, to help them with their business strategy and marketing. They also asked me to work with what was called at the time ‘RChain Holdings’, now Pithia, which was the venture arm for RChain, but it really is a separate company that was created to make investments in companies around blockchain, specifically building on the RChain blockchain.
In December 2017, I was asked to take over as CEO and really re-focus the company. That’s when we did the re-brand, as many would often confuse us with those building the RChain platform
How exactly does Pithia work? What is your investment thesis, due diligence process, etc.?
At the end of the day, the lesson learned from having launched a lot of technology platforms, there are foundational things you need to do first. Its great to say we’re going to change the healthcare or insurance world, but until you have wallets, identity, and exchanges, blockchains are not going to go very far. When everyone is looking to custom build a solution, they’re expending a lot of effort when they eventually try to inter-operate.
So, the investments we’ve taken to date are in the identity space, and we have a couple more we’re going to announce shortly. A notable one being lifeID, which is based in Seattle as well. We’re looking at the sort of ground-level companies, which also include payment platforms, supply chain, and a number of other areas that we see as foundational. That is really what 2018 looks like for us.
What is Pithia’s source of funding?
We were initially funded through a loan from the [RChain] Cooperative, but we are currently building up other LPs.
From an investment perspective, is there a certain size or geography that you are looking for, or are you taking a more broad approach?
We’re taking a broad approach, as there isn’t one center of gravity. The blockchain is complicated enough, so I look to make deals really simple where we aim to take a 10-15% stake with each investment. It’s all pretty straightforward.
You had previously mentioned that you are looking for synergies among the companies that you are investing in now. Are you looking to develop any specific system of cooperation?
We actually launched four months ago our ‘Identity Working Group‘ that is working to build and pull-together standards around identity. We aim to do the same thing in payments, storage, and other areas. So, we are creating that collaboration, which extends beyond companies that we are investing in. By building out that ecosystem in the working group, we are promoting synergies, which is something that we aim to do with all of our portfolio companies.
Is building on the RChain Blockchain an absolute requirement for your portfolio companies?
It has to be apart of their strategy but doesn’t have to be their only strategy. Given that the RChain platform isn’t live yet, some of the companies have started to build on Ethereum and other platforms, and we’re very flexible around that.
From your perspective, how is it working with these early-stage blockchain startups that could be considering an ICO in the future? How does that compare from a due diligence standpoint, relative to more traditional investments you’ve made earlier in your career?
It changes the game, and we recognize that. As things evolve, we are seeing articles detailing approaches by other venture capitalists that put language in their investments terms to restrict the ICO option. Becuase we’re taking equity, it is a lesser concern. What we’re more focused on and concerned with, is the if a company is to do an ICO, that they are doing the proper due diligence and are setting up the proper legal framework. Because governments don’t dislike crypto, but they really dislike scams and things that are unregulated.
So, we look for those investments, we discuss with them what they’re strategy might be for future funding and apply our structured approach. We also commonly take a board seat, which helps to keep us plugged in.
Do you typically look to be the lead investor?
Yes and no. Because I don’t come from that straight investment background, we look for good deals. There are very few blockchain venture capital companies, and many are coming into the space very cautiously because blockchain is not apart of their core competencies. So, whenever we see opportunities to partner with firms in the crypto ecosystem or Washington ecosystem, we certainly reach out to them.
Finally, what would your recommendation be for a small startup or blockchain project that would be interested in partnering with you?
You can send us your information to firstname.lastname@example.org and show us all the basic fundamentals, including management team, etc. You must really sell the problem you are solving, not the technology. Talk to us about what an 18-month roadmap looks likes, with spending outlined. I find that most startups actually ask for too little.
On the blockchain side, where is your earnable token? How is data getting into the blockchain? These are the things that really start to become tangible because you will need to be able to easily define how blockchain fits into your customer’s strategy. I talk to a lot of non-blockchain CEOs, and they’re all very confused.
Those would be some of the real fundamentals that we would ask people to have prepared.