More VCs race to support fintechs at the earliest stage
An emerging VC model seeks to get in on new ideas early, before Series A or initial coin offering, offering coaching, money and other accelerants as close to the point of invention as possible.
“Venture capital is stagnant and slow to adopt to new funding structures,” said Ciaran Hynes, managing partner of Cosimo Ventures, a Boston-based venture capital firm that just launched Cosimo X, a tokenized venture capital fund that’s focused on early stage companies with a concentration in blockchain artificial intelligence, augmented reality, cybersecurity and internet of Things.
Most of these terms will be familiar to people tasked with modernizing shopping, payments and merchant acquiring in the age of Amazon, mobile wallets, the app economy and omnichannel commerce. Companies like PayPal are experimenting with augmented reality, while financial services firms are doing more with artificial intelligence, and merchants are under increasing pressure to adapt IoT to their payment models.
There’s no shortage of fintechs that want to sell this technology to merchants, payment gateways and card issuers — but there’s not enough liquidity to move these ideas along, contends Hynes.
The fix for that is shorter horizons, an easier seat at the table for investors and more guidance at the earliest stages of a startup. While most VC funds have a vesting horizon of about seven years, Cosimo’s token holders can move freely in and out of positions in the fund. Also, while most VC funds require a $500,000 minimum investment, Cosimo’s lowered that to $250,000 in the U.S. and $10,000 outside of the U.S.
Cosimo X does not not have a target amount, making it an evergreen security tokenized fund with no capped amount, which is unusual for a VC. Earlier investors will benefit from a lower net asset value (NAV), and therefore can enter at a lower price, Hynes said, adding the price to investors will increase as NAV increases. Cosimo X is kicking off the fund in the $5 million to $10 million USD range.
This model will make funding faster, Hynes contends, adding Cosimo also will take a hands-on approach to guiding the startup toward an ICO or more rounds of traditional venture funding, depending on the market conditions.
Most of the fund’s early targets are companies that manage information and product actionable data for financial services or payments. Its first disclosed investments are $1 million in seed funding for Gecko Governance, a regtech blockchain company that monitors regulations and requirements; Oneiro, a blockchain and cryptocurrency processing company; and Nova Leah, a cybersecurity risk assessment company.
“Most of this new technology builds off of data analytics,” Hynes said. “Companies are now processing data in a much more intelligent way.”
Other VCs are also seeking to reach companies at the earliest stages and provide direct hands-on guidance through development and prep for later investment rounds.
Vestigo Ventures, another Boston-area VC, also contends most payments and fintech venture capital is going to later stage companies, providing hands-on advisory service to technology startups that provide AI, crypto, blockchain and other emerging technologies to payments and other clients. By having offices in Dublin and Boston, Cosimo should benefit from local expertise to fuel its advisory services.
“Boston has a strong component in blockchain due to the strength of its universities, especially MIT, which are conducting early research,” said Mark Casady, co-founder of Vestigo Ventures. “These local universities also have deep expertise among the faculty that help both the students and the community understand that various ways it can be used. In addition, robotics is a large industry in New England and was a precursor to the IoT movement.”
The faster-funding model is also favored by VCs such as SparkLabs, which has invested in a Mastercard-incubated point of sale startup called Pay by Group; and Blockchain Capital.
“Blockchain, IoT and other emerging tech have been a hotbed of VC investment for a long time now. The fund itself represents a new way to utilize cryptocurrencies, in this case making a VC fund more traceable,” said Rick Oglesby, president of AZ Payments Group, adding it will be similar to a mutual fund where the cryptocurrency or tokens will be bought and sold like shares in a mutual fund. “It has the potential to increase funding availability to startup companies, which is a good thing for innovation and for the economy.”