We were honored when CNBC Africa approached iCapital to feature and curate a show dedicated to Israel’s vibrant blockchain ecosystem. Watch CNBC anchor, Ran Neu-Ner, being taken behind the scene with Agada Nameri, iCapital.io‘s General Manager, meeting with some of the biggest players in blockchain including a feature interview with iAngels’ Shelly and Mor.
By Mor Assia
Artificial intelligence and blockchain are possibly the two most influential technologies currently fueling innovation at the moment and are anticipated to create radical shifts in almost every industry. Israeli startups are at the forefront of both of these sectors, receiving notable attention and investments from global players which are further propelling Israeli development in these industries.
AI becoming de facto for scalable companies
Several years ago AI was just a buzzword, but today technology companies must, as a priority for growth, embed machine learning algorithms into their core systems to stay ahead, advance operations and increase performance. AI’s three most notable capabilities include; insight extraction from big data, real time response mechanisms to mitigate and capitalize on events and the opening up of a pandora’s box of product and service innovation.
By the end of the decade AI will become commonplace in our everyday lives, and its potential, especially when it comes to predictive modeling, is already being used in many sectors such as fintech for financial risk modeling and fraud analysis, real estate to draw insights from the abundance of geographic and economic data, and cyber security for anomaly detection. In Israel, the average investment per deal in AI grew 5 times in value, from $2M in 2016 to $10.2M in 2017. Subsequently, the growth in this sector is reflected in the overall investment numbers for AI in Israel, with the market growing from $55M in 2016 to $472M in 2017.
Mobility is a Sector Driven by AI Innovation
Fueling the mobility sector is AI, which is starting to open up a new world of opportunity. Israel is home to hundreds of startups in the field of car technology, from those developing sensors and car safety solutions to smart city mobility applications. These companies are propelling Israel to the forefront of the rapidly growing field of driverless car technology. AI enables vehicles to process what is going on around them in real time, allowing for a much higher standard of safety and greater possibilities for efficient transportation systems.
The immense potential in this field is reflected in the rapid growth of automotive companies. In Israel, total investment in transportation and autonomous vehicles grew by 64% from $321M in 2016 to $528M in 2017. Israeli autonomous vehicle companies raised $182M in the first quarter of 2018, in line with last year’s pace. Israel has become a hub for automotive innovation thanks to Israeli founders having very specialist skills and experience in the niche space that sits between hardware and software. The presence of both multinational hardware and software companies in Israel started a while back when such corporations as Motorola, Intel, IBM, HP and many others opened their R&D and production facilities in Israel, allowing a unique skill set to develop locally. Furthermore, experience gained during the military service gives strong exposure to the technology that enables Israel’s military to fly drones remotely, guide and intercept missiles and secure computer systems that are now being deployed in the development of driverless cars.
Israel’s Autonomous Sector is Thriving
The Israeli company, Arbe Robotics, which was founded in 2015, is a global leader in the autonomous vehicle space and is one of the most talked about radar companies in the world. Mobileye that develops vision-based driver assistance systems for collision prevention and mitigation was acquired by Intel in 2017 for $15.3B, making it the most outstanding exit of any Israeli company to date. This was a kickstart to additional acquisitions in the space of Israeli companies including Otto, Argus and Exo. Today, Israel is enjoying a lot of attention from OEMs, including; GM, Ford and VW, automotive tier ones, such as Bosch, Delfi and Harman, and software giants looking to make significant acquisitions in the automotive space in the hope of achieving level 3 and level 4 automation.
Blockchain is Superseding Interest in Fintech
According to a Research and Markets report, the global blockchain market size is expected to grow from $4.5M in 2017 to $7.68B by 2022. Israel’s unique experience with fintech, cyber and cryptography and the close co-operation between science, innovation and finance sectors in the country, has made it a hotspot for blockchain innovation. As a result, there are numerous Israeli entrepreneurs and startups that are developing diverse blockchain projects. In fact, blockchain has become so prominent in Israel, that it has edged out fintech startups and investments.
While there was a decrease in funding of Israeli fintech startups, from $578M in 2016 to $458M in 2017, we believe this funding has migrated from fintech to blockchain. If you look at blockchain investments or if you consider the overall ICO dynamic, in 2017 alone, over $5B was invested in 900 ICOs. Of this, Israel’s contribution was approximately $500M in 17 ICOs, making the average Israeli ICO 6 times larger than its global counterpart. Leadcoin, a company which enables businesses to sell their unused leads and buy leads from other businesses, held the biggest ICO of Q1 in 2018, raising $50M in less than 30 minutes.
Other notable Israeli projects in the finance space include the Saga Foundation, a new asset-based cryptocurrency with advisory council members including a Nobel Laureate and representatives from the world’s largest banks, and Firmo, a project helping to enable the execution of verified financial instruments seamlessly between blockchains. Both have received considerable international attention.
Blockchain has the Potential to Permeate Most Sectors
While fintech has definitely seen the most significant application of blockchain so far, there are many other sectors that stand to benefit from blockchain technology. Some of the technology’s most exciting applications include, increasing transparency and traceability in food and agriculture by creating incorruptible ledgers that trace food pathways. In healthcare, enabling patients to have full control over their medical records, allowing them to share and have the freedom to monetize data for purposes of medical research. In the automotive sector, blockchain is instrumental in autonomous vehicle ownership via tokens with the vehicle as platform, plugged into smart contracts for insurance and leasing purposes.
Currently blockchain is building a parallel world of opportunity, which will at some stage permeate most of the world’s industry sectors once more mainstream adoption has been achieved. As the technology has the capacity to be as big as the invention of electricity or the internet, Israel too has the potential to increase its impact on global innovation by staying at the forefront of development.
Israeli companies in the AI, mobility and blockchain space are currently a magnet for overseas investors from Asia, the U.S and Europe where angels, VCs and institutionals are all searching for groundbreaking innovation. We anticipate this interest to continue to grow as the opportunities in tech further develop.
JOIN OUR “BLOCKCHAIN BREAKFAST CLUB” EVENT IN TEL AVIV ON THURSDAY AUGUST 16TH. FIND OUT MORE AND RSVP HERE
Uncertainties regarding regulation may discourage investors from backing blockchain companies. iAngels co-CEO shares blockchain investment insights
There are many similarities between the emergence of blockchain and the early stages of the internet. The Internet caused a lot of hype early on, but its real impact on our lives didn’t fully materialize until roughly 20 years had passed.
Many people don’t realize, but the blockchain doesn’t fully work yet for real-world applications, as the nuts and bolts aren’t fully in place. For example, real-world companies that process millions of transactions with millions of users can’t currently run on the blockchain, as the technology is too slow and too costly. For example, Ethereum can process 15 transactions per second whereas Visa processes 45,000.
This does not mean people should sit on their hands and wait for blockchain technology to mature. There are smart ways to invest in this still budding technology. Here is where investors should direct their attention in 2018.
Two words: blockchain infrastructure. With blockchain technology needing to pick up the pace, any technologies that enable the blockchain to be faster and more scalable are appealing. We have invested in several protocols that have built their own blockchain, Cardano and Neo for example, as well as networks, like Raiden, which enhance the performance of existing blockchains. Since each business comes with its own security, speed, and privacy requirements, we believe businesses will go on to adopt several blockchains for different uses. Technologies enabling blockchains to connect with each other, such as Aion and Icon, will play a key role in the future of the industry.
All eyes on China. There is a lot of uncertainty around the regulation, but if we look historically at how China dealt with the emergence of the internet and social media, it’s more likely that China will cooperate with local blockchain networks in order to take part in the economic opportunity they bring. Instead of outright banning blockchain, the likely scenario would be that China would compel the industry to comply with regulations, just as Chinese companies Baidu, Alibaba and Tencent have done. Given the size of the Chinese economy and the scale of the opportunity with companies like Alibaba, and Tencent—the most valuable internet company in the world—there is a lot of upside potential in China. We have made several investments in this theme, specifically in Chinese counterparts to some of the more established western blockchain platforms, such as Neo, Wanchain, and IOT Chain.
Tokenization is the theme. Tokenization of assets, equity, limited partner interests and other securities will be a very interesting theme in the coming years. In the long term, the majority of tokens are likely to disappear, leaving a select few that will be used for most blockchain applications. Like in the fiat money world, only a handful of strong currencies prevail. However, tokenization as a means to distribute a stake in a venture will gain popularity whether it be equity or LP interests. This will be applicable to any kind of venture. As blockchain technology develops, people will no longer want to lock up their funds in any given investment, as it will be possible to create liquidity throughout the lifecycle of the company, partnership, or network. Liquidity providers will include regulated exchanges like Quoine and Tzero for security-like tokens. We are already seeing innovators in this space. Recently, VC backed Kairos created a token distribution which includes both security and utility tokens and Spice VC is creating a platform allowing venture capital and private equity firms to create tokenized funds.
Blockchain-based business model. While we believe it is still relatively early to focus on the applications of blockchain, we are making select investments in businesses that have decided to transition to a blockchain-based model, and have pre-existing customers and revenues. Our investments so far in this space include Kin, Props, and Bread. These companies are unique because they are lead by entrepreneurs with business experience and assets they’ve built over the years, giving them a real shot at generating initial adoption of blockchain applications. Social networks, sharing economies, and mainstream access to blockchain assets are some of the applications that make a lot of sense for blockchain technologies.
Invest in the marketplace. In an economy with many networks and tokens, marketplaces that allow people to access, use, and convert token value are crucial. Any blockchain application will ultimately need to integrate exchange functionality in order to allow people to gain value. This is why we have invested in several exchanges, such as Binance, QASH, 0x, and Kyber.
Turning insight into action, I believe that the best approach to investing in the industry—with all the uncertainties around regulation and application—is to build a diversified portfolio of infrastructure companies with a heavy weighting towards tokens that are positioned to be winners can withstand volatility and market corrections.
Shelly Hod Moyal is the founding partner and co-CEO of iAngels, a Tel Aviv-based venture capital and private equity firm.
Mor Assia and Shelly Hod Moyal say theirs is the venture capital fund of the future – and a 300% return is hard to argue with.
“This technology is no less revolutionary than was the invention of electricity. Our generation grew up with the Internet revolution, but we can already see that the Internet industry is gradually switching to the next revolution: blockchain,” says entrepreneur Mor Assia. Together with Shelly Hod Moyal, she founded the iAngels venture capital investment platform, and the two women launched a fund for investments in blockchain two months ago, after realizing that this was a technological revolution likely to change the financial world, and other things as well.
Blockchain is a system for processing digital currency deals, based on a distributed and encrypted database. What is new about this technology is that it facilitates payments without a central entity (such as a bank or credit card company) supervising the transfers and controlling the database. The system is based on a communications network in which each of the parties is both a customer and a server, and there are no intermediaries between them.
The technology, which is based on “blocks” of deals, is designed for use in a range of industries. Last year alone, blockchain startups raised over $2 billion worldwide. This mighty stream naturally also drew in Israeli investors who spotted the opportunity, with Assia and Moyal among the leaders. They are in fact local pioneers in this red hot sector, which is still relatively virgin ground for investors. The new fund that they founded has already invested $15 million in seven startups.
“We started investing in companies operating in the sector because we realized that there are many funds that are afraid of it because of its controversial reputation. Many companies could not even manage to open a bank account in order to pay salaries, because the banks put spokes in the wheels of entrepreneurs in this field. Entrepreneurs founded offshore companies in order to remain beyond the regulators’ radar, and tried to build interesting technology with extremely limited resources.”
“So far, the fund has a 300% return,” says Moyal. “Such opportunities come along once in a lifetime. It’s risky, volatile, and can go down. We have already experienced sharp dips. This is a crazy world. My husband (Cyhawk Ventures general partner Kfir Moyal, R.K.) sometimes tells me, ‘I can’t talk to you; stop talking about blockchain.’ My whole day revolves around it; it’s addictive.”
“We invented a new animal”
Moyal, 34, has a strong financial background. Before founding iAngels, she worked as a financial consultant at the UBS investment bank, then as an analyst for the Avenue Capital hedge fund in New York, and later as an investment banker at Goldman Sachs Israel. Assia, 36, served in the IDF’s elite intelligence unit 8200 (Israel’s NSA), and has a BSc in mathematics and computer science from the Technion Israel Institute of Technology and an MBA from Columbia University. Before founding iAngels, she worked at SAP, IBM, and Amdocs Ltd.
Moyal and Assia met by complete accident a decade ago in New York at a party held by mutual friends. They hit it off immediately, and have not parted since. They returned to Israel at around the same time, gave birth around the same time, and when they were on maternity leave, each of them did her own soul searching, and reassessed her career.
Thus was their venture capital investment platform born four years ago, based on a crowd financing model in which investors from all over the world can take part in a financial opportunity that would ordinarily be closed to them by investing $10,000. “We have raised $100 million at iAngels to date, and have invested in more than 100 startups. We invented a new animal. We’re actually creating the venture capital fund of the future,” Assia explains. “Entrepreneurs can operate with a single investment concern, instead of being split among various firms, while on the other hand benefiting from a connection to a network of investors from all over the world.” iAngel’s network of investors includes 1,000 people from 50 different countries.
“Globes”: How long did it take you between spotting the potential and founding the blockchain fund?
Moyal: “We started investing in blockchain startups over two years ago, but it took time for things to get going. The feeling was that it was taking more time than people expected. About 10 months ago, I realized that something was going to happen. I felt a very significant change was about to occur with the potential to change the world. It was a moment of inspiration. I knew that this was it, that it was coming now. It was very exciting for me. I haven’t experienced such a sense of conviction as I felt at that moment for a long time.
“It usually takes 12-18 months to found a fund by the time you do all the auditing, especially when you’re dealing with a new asset. We did it in seven months, and we were among the first to establish such a fund, which shows something. This doesn’t mean that we now understand exactly what’s happening in this industry. Everyone is as a point at which they’re preparing themselves for every possibility.”
This is the place to mention the close connection between blockchain and the digital currency stirring up the market – bitcoin. This currency, which has been soaring in recent months, with the price reaching a record $20,000 for a single bitcoin during December, exposed blockchain technology to the world. Even Prime Minister Benjamin Netanyahu recently referred to bitcoin, saying, “Will the banks disappear in the future? The answer is yes. Will it happen tomorrow? Will it happen because of bitcoin? That is the question.”
“I agree with a lot of what Netanyahu said. The banking world will undergo a transformation, and the role of the bank will change,” Moyal says. “Bitcoin was created in response to the 2008 financial crisis as an expression of rebellion against the authorities printing money and diluting its value for us, the average citizens, in order to save huge irresponsible companies.
“If bitcoin becomes a substitute for gold, as many speculators are hypothesizing, the value of bitcoin currency could reach $300,000 much more quickly than people think.
“There is a libertarian and anti-establishment kernel in the community that uses the currency, similar to the free-of-charge software culture in the 1990s. This community has strong anti-commercial and anti-establishment values. Despite the dominant commercial aspect, there’s something deeply ideological here.”
Is blockchain an expression of a world in which consumers try to break free of the corporations’ chains?
Assia: “The center of power is passing to the consumers, and they want to be the ones who decide. Consumers are demanding transparency, immediacy, added value, and autonomy in relation to their money. A consumer who has already been exposed to cryptographic (digital) currencies usually wants to increase exposure to these financial assets, and is not inclined to convert them back to ordinary currencies. A new market has been created here of consumers who do not consume services from the conventional banking system.”
How will it change the financial world?
Moyal: “Blockchain infrastructure enables people to cooperate, conduct deals, and trade directly, almost free of charge, and without any prior knowledge. This infrastructure is already partially available to us through the banking systems, some of which will become superfluous when blockchain penetrates the market in depth. This doesn’t mean that the banks will disappear, but it certainly means that their role, as we know it today, is going to change. Blockchain will do to the financial and regulatory system what the Internet did to the media and advertising companies.”
Everyone wants bitcoin
Moyal has a simple clear answer to the question of why companies are issuing new digital currencies: “The capital market is broken. Companies don’t want to offer shares on the stock exchange now; they prefer to remain private companies. The offering process is lengthy, expensive, bureaucratic, and involves a lot of exposure. Trading volumes on stock exchanges are falling, while a multi-billion dollar trade is now taking place in digital currencies. For example, if a company wants to raise capital from investors all over the world, each of whom will invest $50,000, it can’t do it through an offering on the stock exchange. Blockchain is giving companies options for a global offering.”
What is the average profile of a blockchain investor?
Assia: “Most of the money in the industry today comes from a few dozen billionaires who made a great deal of money from bitcoin, and are seeking to enrich their portfolio with other types of currencies. At the same time, new investors are entering the market every day.”
Moyal: “It’s terribly difficult to characterize the new investors, because they are people from all walks of life – even my babysitter asked me how to buy bitcoin – which adds another layer of risk. I get calls from a lot of people who want to take part in what’s happening. Almost everyone I know bought bitcoins in the past month.
“This market has passed the $500 billion mark, and we’re seeing a major rise in prices at a time when the technology is not yet being used in our daily lives. Its value has risen far more than the value it delivers right now, so you have to be cautious. Everyone has to sit and think about what is appropriate for him or her, because the market can go down the same way it’s going up now. We have already invested in currencies that have fallen 80%, then went back up even more.
“On the other hand, there’s something exciting about this, like the first Internet technology revolution. There are things here that have always have always attracted the most brilliant minds, talented entrepreneurs, and big investors. We’re investing in infrastructure technologies that we believe can survive a crash.”
Can we already speak of a bubble in the digital currencies market?
Assia: “Like the Internet revolution and the dot.com bubble that burst in the late 1990s, there are also signs of a bubble now in blockchain. There’s hype, there’s fear of missing the boat, and there’s a gold rush. People hear success stories about those who invested in bitcoin six or seven years ago, when it was worth less than a dollar, and the currency has since increased its value thousands of times over, and they think that if they invest in a new digital currency, maybe it will succeed like bitcoin. Even when the bubble deflates, a lot of good successful companies stay successful, and there are important companies that will probably remain stable.”
How is an investment in a blockchain company different from an investment in an internet startup?
Moyal: “Here, you don’t invest in a company; you invest in a network, and you buy a token, not a share. In a company, a shareholder has rights, such as voting rights and profit rights. You don’t have those rights in blockchain; you’re in the same boat as the entrepreneurs, the users, and the other investors. It’s like investing in a cooperative economy, and this technology has enormous potential.”
The level of information security of the blockchain platform also carries risks. For example, due to the anonymity of the platform, it is also useful for criminals, who use it as a convenient refuge for realizing dubious businesses. “There were recent cases of a digital currency offering in which money was stolen during the offering,” Assia says. “It happened because a hacker planted a wrong digital address on the website of the company making the offering, and participants in the offering unknowingly transferred their participation money to that address. This is another good reason for investors who are not well acquainted with this market to avoid taking part in offerings that have not been checked out, and where steps have not been taken to prevent any possibility of such a situation occurring.”
Is there way of making sure that the companies offering a digital currency fulfill their obligations to the buyers?
Assia: “You can ask exactly the same question about an investment in a startup that has only a prototype product, and wants to raise $1 million. How do we know that the entrepreneurs won’t take the money and go to the beach? That’s why we conduct due diligence before any investment, assess the entrepreneurial team, and also test the sentiment in the blockchain community towards that startup. Where companies that already have a beta product are concerned, we meet with the teams and see how the product works and who’s working there. If we believe in the product, we expect its value to rise after the ICO.”
“I got my life back”
“When we founded the fund, we came into it with a lot of naivte,” Moyal says. “We thought that we’d set up a website, do marketing on Facebook, and people would come and invest $1,000, but it doesn’t work like that. Building a business is a challenge. You have to build networks of relationships and trust with people. We began everything from the cellar of my home. Every morning, we thought, ‘What will we do today?’, and set targets for ourselves.”
You left a comfortable job with a safe income for your business.
Moyal: “Before I became self-employed, I worked around the clock. It was normal to go home at midnight. When I gave birth, I got my life back. I gained perspective; it opened me to the world. I realized that this was an opportunity to take my life to the next stage. I took time out to ask myself what I wanted to leave behind me as a legacy. These are acute points in life at which you can do soul searching.”
Entrepreneurship is a gamble that takes courage. Weren’t you afraid?
“At the beginning, we worked without any capital. We slowly began to build a product. It was difficult to raise the first investment capital. We did a pitch and went all around the industry. We met with Gigi Levy-Weiss. He didn’t know us, and it took a long time for him to free up time for us. I remember that at the end of the meeting, after we spoke of the vision and the dream, he said, ‘Good, I’ll invest.’ We were in shock. We asked how much, and he said, ‘$50,000.’ We were so excited that someone believed in us and wanted to invest in us. We raised $300,000 more immediately afterwards, and got going. As we see it, above all we’re entrepreneurs.”
Are you entrepreneurs or investors?
“Both. When we’re taking to entrepreneurs, we can connect with them on a different level, because we know what they’re going through. They appreciate us being on the same level as they are, and see in us the hunger and the ability to take on board and understand situations.”
Over the past four years, the two women have managed to expand their families as well as their business. Assia has four children (the youngest is five weeks old), and Moyal has three. “There’s a division of labor between us in births,” Assia laughs. “When one of us is on maternity leave, the other works like crazy.”
“I met my spouse when we were 20. I saw a lot of women in New York who said, ‘We’re spending 10 years on a career now, and then we’ll invest 10 years in a family.” From my point of view, it can’t work like that. That’s even truer in high tech, where you can’t even take six months off. So there’s no choice; you have to do things simultaneously. There’s private life and there’s work, and we run 200 kilometers on two tracks simultaneously. We’re deeply into this. We live, dream, and even think all day how to make the business grow.
“This juggling act of doing it all – both raising three or four children and putting all of ourselves into entrepreneurship – is non-stop insanity and adrenalin. In one week, I experience several super-amazing and super challenging things all at the same time, and it makes me mentally tough. We’ve learned to cope and acquire talents that help us deal with the life of an entrepreneur.”
What, for example?
“Staying cool. If you were to take me back four years and tell me to deal with the situations I face today, I wouldn’t be ready for it. We’ve learned to keep on top of the things that happen to us. Even if there’s a very difficult day at work, we’re able to put it aside and be with our families, and even to sleep at night.”
The average exit
Assia’s father, Amdocs cofounder Dr. Daniel Keret, and Moyal’s husband, Kfir Moyal, cofounder of the Matomy media company, are on the board of directors. Assia’s husband, Yoni Assia, son of Magic Software founder David Assia and cofounder of the eToro investment platform, is also closely accompanying iAngel’s growth.
How is your activity today different from the way you started?
Assia: “Over the past year, we have become a leading investor in the early rounds of startups, and the volume of our activity has grown. While we formerly invested up to $500,000 in a company, today we are already investing $2-3 million. Since we started by working on a joint investment model, many entrepreneurs in the industry are still unaware that we can invest $2 million in a startup. The investments we led over the past year, however, have had an impact around us, and the industry is starting to realize that we can lead financing rounds.”
Moyal: “95% of the companies that iAngels have invested in to date are still active. Five companies in which we invested have already had an exit, and 30 more have had a round-up – another financing round at a value higher than the one at which we invested. In addition to that, we have enabled our investors to sell their investments in four portfolio companies between the first and second financing rounds at returns of 2.5-5 times in a year. We have other companies in advanced stages of being sold.”
Move, and quickly
iAngel’s profit model is based on a 2% annual management fee for four years from the entire investment portfolio – a total of 8%. “In addition, we receive 20% of the profits from each investment, but that’s only after an exit or IPO,” Assia says. “When we make an investment in the early financing stages of a startup (seed or A round), our expectation is an investment horizon of at least five years. This is a long-term strategic investment.”
How is the experience of working with Israeli entrepreneurs different in comparison with US entrepreneurs?
Assia: “Israeli entrepreneurs have flexibility in thinking and business. If an Israeli entrepreneur runs into a wall, he turns right and bypasses it. Our need for constant renewal and movement is inherent. Many investors prefer an entrepreneur who makes a decision and moves quickly, even if the decision isn’t always right, to an entrepreneur who doesn’t make decisions.”
What have you learned in the past year that has changed how you do things?
Moyal: We learned a lot about management the hard way. We learned that when you provide employees with a pleasant and liberating environment and let them create, they are more effective, loyal, and happy than employees whom you constantly supervise, and whose mistakes you correct all the time.”
Only three of your 20 employees are men. That is quite rare on the capital market scene.
Assia: Since we’re more open to accepting women, more successful women tend to be attracted to us. The women working at iAngels are all ‘sharks’. Everyone who comes to the company feels the energy of the office immediately. We’re looking for superstars.
“We’re the firm that has invested in the most women’s startups to date. Still, women are a minority among entrepreneurs. Only 10% of the startups we have invested in have women among their founders.”
Many in Israel have been bitten by the startup bug, and jump into the deep end.
“Israel has the most engineers and managers per capita. When you look at LinkedIn, everyone has startups. Women are less inclined to take risks, but I tell them to challenge themselves. I work many more hours today than I worked as an employee, but now I’m the one who sets the rules of the game and my priorities, and that puts a lot of power in my hands.”
The full Hebrew version of this article appeared in “Lady Globes” magazine.
Published by Globes [online], Israel Business News – www.globes-online.com – on January 18, 2018
iAngels is raising a dedicated blockchain fund that has already invested $20 million, co-founder Shelly Hod Moyal said in an interview with Calcalist on Monday. The fund is currently going after additional investors, targeting $100 million in commitments by the end of 2018.
Founded in 2013, iAngels operates as an equity crowdfunding platform that allows accredited investors from around the world to invest in Israeli startups. “We conduct similar due diligence processes when we seek out a Blockchain company,” explained co-founder Mor Assia. “We look for strong teams, scalable tech solutions and initiatives that will help this new ecosystem grow.”
The firm intends to invest in blockchain-related startups immediately before or through their ICO (initial coin offering). It seeks to make long-term investments, Ms. Assia said.
“We started investing in this industry two years ago,” Ms. Hod Moyal said. “We decided that since this industry has a slightly different economy, we need a fund that will focus solely on this kind of technology, and we have witnessed an amazing growth spree in this field, things we assumed will take years are being done within months.”
As cryptocurrency gained popularity, domain-specific investment vehicles were created, including MetaStable Capital, established in 2014, and Polychain Capital, established in 2016. Menlo Park, California-based Sequoia Capital, hedged their bets by investing through these cryptocurrency funds. In December, TMT Investments, a tech-focused venture capital firm, launched a blockchain focused fund.
iAngel’s new fund will not be limited only to Israel-based companies, and the two intend to look for investments globally, with a specific focus on China.
ICOs have been steadily gaining popularity, but recurring frauds, lack of regulation and speculative investments have reflected poorly on the domain. “We can’t have a conversation about Blockchain without someone asking us whether it’s a bubble. There are indeed plenty of indications to the existence of such bubble, but I believe we will see a lot of growth before we see a correction,” Ms. Assia replied.
“Wherever there is innovation, or financial awakening speculation will soon follow, and our economy needs these speculations because they attract the most brilliant minds and the most sophisticated investors,” Ms. Hod Moyal added. “This is the economy’s way to grow, and this is how companies like Facebook or Amazon were created. It’s natural. A lot of the time the technology is moving faster than the regulators, but they will catch up.”
Mor Assia represented iAngels on stage at the Globes Israel Business Conference in Jerusalem, discussing the advent of blockchain technology and the impact it’s already having on the worlds of finance, VC, and banking.
*The following footage is in Hebrew.
By Shelly Hod Moyal
Not a day passes without someone influential denouncing Bitcoin, often describing it as ‘a bubble’. Undeniably, bubbles do exist in the burgeoning world of cryptocurrencies but i’d argue that Bitcoin doesn’t fall into ‘the bubble’ category and instead question the skeptics’ motivations.
Before diving into Bitcoin, it is important to differentiate between bubble and speculation. In all types of investing there is speculation. The speculative aspect of the investment is the percentage of the asset price that relies on future expectations around the asset vs. the value it provides today. Let’s say the value it actually creates in the next 12 months vs. the value it is expected to create in the future. In this respect all our investments have a degree of speculation. In early stage investing that speculation is higher by magnitudes because many of the companies we invest in, haven’t yet created real value (at least not in the form of profits) and all of their prices are derived from expectations of their future. You can think of it as:
This speculation plays an important role in the venture capital world and innovation in general because the greed it creates is what incentivizes entrepreneurs and investors to play a part (found a startup or invest in one), making at least part of these dreams – around 3% – a reality. The thriving global startup ecosystem, responsible for building the likes of Facebook, Uber, Snapshat and WeWork, that has billions of dollars of investment money invested into it each year, is built on this exact premise.
So, what makes a bubble? When the price of an asset is untied to rational fundamentals around the potential future value of said asset. Let’s take for example, a market of $1bn and assume there is no annual growth. A startup company aims to capture 10% of this market over the next 10 years but currently has only a team and a proof of concept. This market has already several incumbents that are established and each are valued at $50-$100m. Assuming this startup has a strong value proposition and signaling from the market, one can imagine how this startup could be valued at $5-10m. However, if I were to tell you that the company is currently valued at $200m, this could signal that this asset is in a bubble because the volume and adoption this company would need to achieve in order to justify such a valuation (in present value terms) is unimaginable and unattainable given the market size, industry structure and valuation.
Taking this example, it’s possible to see how many cryptocurrencies in circulation today have over inflated valuations. Many have a market cap (network value) of hundreds of millions of dollars while some of their initiatives haven’t even proven their worth by way of a product or adoption. Even some of the most successful real-world counterparts, rarely reach such spectacular valuations as we see in the world of cryptocurrency, indicating that some of these asset prices are not tied to their respective market opportunities. Therefore, I view it as the job of the investor to ask the right questions and analyze each asset thoughtfully, to rise above the hype and separate the bubbles from the real opportunities of wealth creation. And yes, many of the tokens out there are part of this bubble, but I strongly believe that Bitcoin is not one of them. While the price rose quite rapidly in the past year, it was off the back of some of the following real fundamentals:
1. The single most important feature for money to be real is for people to believe in it and to want it. There is a real utility here as people are actively using it to store value and use it to pay for goods. Just look at Japan’s massive adoption of Bitcoin and the suggestions that several major Japanese banks will start trading Bitcoin as a currency like the yen, dollar and euro. Moreover, in the long run, the complexity of Bitcoin will not have a negative impact on adoption. Only rarely, do users understand the underlying technology of the products and services they use (e.g. the internet).
2. Bitcoin supply is capped. There is a real growing community of people that are sick and tired of having their wealth controlled by centralized governments who constantly tax their citizens by diluting their value through the printing of money at the government’s discretion. This trend is good news for Bitcoin and the fact that its supply is finite, makes Bitcoin a far more effective and attractive store of value.
3. The market for “store of value” is enormous and so you can easily see how if adoption grows at this rate and supply is finite, network value could reach trillions. To illustrate this, the market for gold which is used only as a store of value is ~7.8 trillion US dollars. Even if 5% of that moves to gold, the impact on Bitcoin’s price would be huge. We strongly believe that as Bitcoin investing becomes easier through better UX and financial products like ETFs, many more investors will become adopters.
4. The argument that Bitcoin can’t be a store of value because of its volatility is not strong enough. I can see why a volatile currency is problematic and I can also see why the volatility here is a disadvantage but if something is scarce and adoption is growing, it can be an effective store of value as it has been over the years for Bitcoin hodlers (those who ‘Hold On for Dear Life’). Furthermore, as network value grows, naturally, volatility will decrease. Although we don’t expect volatility to reach the level of traditional fiat currencies. Certain price fluctuations will remain due to the fact that fixed supply meets variable demand. Global economic activities and shocks in Bitcoin demand can always result in significant volatility (similar to that of gold).
5. When modelled using “the quantity theory of money” the value price of Bitcoin is justified. In our calculations, we do not include 1) lost coins due to loss of private keys or willful destruction and 2) coins that are HODLed. We do this, because in any given year these coins are not in circulation and therefore not available to the crypto-community. According to a study conducted by ARK Investment Management LLC & Coinbase, between 2012 and 2016, on average 54% of Coinbase users only purchased or held Bitcoin during the year and approached the cryptocurrency strictly as an investment. In addition, back in 2014, John W. Ratcliff concluded that around 30% of existing Bitcoins are lost, equating to 25% of existing coins today. Adding these figures together, we conclude that around 80% of outstanding Bitcoins are inactive. Given the average daily transaction volume of around $1 billion, the price of a Bitcoin today can be justified even when excluding discounted future expectations.
Now even though Bitcoin is not in a bubble, it doesn’t mean it doesn’t hold risk. For example the regulatory uncertainty worldwide can destroy value for many investors, especially if their time horizon is short. Another big risk is the distribution of Bitcoin. Most coins, are held by a few individuals, the so called “Bitcoin Whales” (around 3% of existing Bitcoin addresses hold approx. 97% of all Bitcoins in circulation). Therefore, as an investor, you need to be aware that the market could be manipulated by just a few. This can result in an event called “Slaying of the Bearwhale” in the Bitcoin scene. For example, on October 6th, 2014, somebody sent 26,000 Bitcoins to Bitstamp in order to sell.
In the long run, the price of Bitcoin depends on the number of new users joining the community, be it as a store of value or to use it as a medium of exchange. It is very important to understand that nowadays there are only a few people who own Bitcoin (on a global scale). In fact, today only around 3.1m wallets hold more than US$100 worth of Bitcoin and only approx. 1.2m wallets hold more than US$1,000 worth of Bitcoin. While on the 1st of January, 2017 (see graph below), there existed only around 11m Blockchain wallets, today there exist 17.1m (+55.5% YTD). We expect adoption to continue increasing exponentially.
To conclude, based on all the analysis, not only is Bitcoin not in a bubble but it is in fact, undervalued in many respects. Not just on its future speculative value but on actual utility value that can be justified today. So, my recommendation is that if you haven’t done so already, go ahead and take advantage of the skepticism that is still out there to buy Bitcoins at a good price.
The technology behind cryptocurrencies is called a “blockchain”, a continuously growing public ledger that tracks who owns which virtual coins. Imagine that, instead of a bank, there was simply a shared google spreadsheet with account names and account balances. That’s the blockchain. No single computer stores the blockchain alone, and no single entity owns the blockchain. Instead, the blockchain is distributed over a network of computers, which synchronize copies of the blockchain amongst themselves. Anyone can add their computer to this network.
Despite the public, distributed nature of the blockchain, clever cryptographic technology makes the system more secure than even government systems. It’s computationally impossible to transfer ownership of bitcoins in the blockchain without an account owner’s private key, which works like a password. This means that only the owner of a bitcoin can transfer that bitcoin to another virtual account. The system relies on “miner” computers, which are incentived to keep the system running in exchange for completing the computational grunt work that keeps the blockchain system active. As compensation, miners earn bitcoins.
Ethereum, an emerging cryptocurrency alternative to Bitcoin, allows users to transfer cryptocurrency with self-enforcing terms defined in “Smart Contracts”. A smart contract transfers currency automatically when certain conditions are met. This allows currency exchanges to take place without an intermediary. No centralized bank, government, or company is needed to mediate between parties.
Using the smart contract system, Initial Coin Offerings (ICOs) on Ethereum have emerged as a new way to fund Blockchain-based startups. ICOs are swelling in size. An Israeli cryptocurrency startup called Bancor recently raised a record breaking $153 million in an Ethereum ICO.
Self-enforcing smart contracts have the potential to make many middle-men and their overhead costs obsolete. Instead of Uber standing between drivers and riders, collecting fees, a smart contract could transfer payments automatically when a GPS chip in the driver’s car reached the rider’s destination. Imagine a decentralized Uber, eBay, or Facebook owned by the masses, with a fraction of the overhead cost.=
Blockchains’ security and decentralization promises to revolutionize how business networks operate. With over 90 central banks engaged in blockchain discussions worldwide, the internet is on the brink of change.
See Yoni Assia in conversation with iAngels Founding Partner, Mor Assia in this webinar.
Yoni Assia is Founder and CEO of eToro and an advisory board member at Bancor, who has just finished the largest ICO to date.
You can read our summary on the basics of Blockchain 101 here
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