Alexander Borodich, Founder & Managing Partner at VentureClub.co

The emergence of such protocol and such funds will change the financial landscape forever. Money will become cheap, fast and affordable. Banks will die. Venture funds will either transform into something new and accept the new reality, or die, too.

Dmtry Bulychkov, Research and Development Manager (R & D Manager) at Sberbank of Russia

We are moving from property (profit) investments (distribution) to investments and distribution of values. Blockchain allows to do this easily. We are at the beginning of the time when robots (drones, robo-taxis and trucks, virtual helpers and so on) will be economical actors. They will be the basis of the future economics and lead to the increase of well-being and changes in economical processes, and also the economical basis and superstructure. Robots will consume investments for creation and distribution of values, cryptofunds will transform into a system that will serve the new economy. Blockchain is very good for robots: they don’t have private lives, they don’t need the right for oblivion, they can generate their own value (crypt), and exchange it for other values effectively. Money (fiat) functions as a universal value measurement. They define the cross course of all other values (food, energy, products and so on). In blockchain and crypt these cross courses can easily be set p2p, so every element can be measured in any other. That’s why cyberfunds can find a new niche in the field of controlling the values in the world. AI development will lead to every coin and token being intelligent, so every physical and virtual entity that takes part in economical processes can be granted with intelligence. So I would sign a death warrant to cyberfunds right after VC within the next 10–15 years. It is an important tool, but it’s just a transition to the new economic reality.

Denis Efremov vice president of Da Vinci Capital

If the legal nature of tokens is fixed soon, it is possible that the market will react quickly and move from share investments to token investments in 2–3 years. In this case token=quasishare. However, this substitutes the very nature of token as an alternative digital asset. The change of mindset funds will take a long time, more than 10 years. Right now cryptofunds are not mere clones of VC, they are something between VCs and hedge funds. Estimation principles are venture, and principles of investment portfolio control are like in a public fund. Both will change in the future. In the short term (1–3 years) processes in venture funds will transform significantly. Fund of a later stage will go through it much later, but they will fall behind their LP in terms of profit. AI in investments is not a new thing, but it is very promising. In digital economics, based on blockchain, the role of algorithms is very important. Traditional professionals will be required to form the methods of economical assessment, but the engineers will be running the show. Algorithms will become more and more complicated, because the funnel of projects will be very narrow. It will be much harder to attract money to ICO.

Fund as such with its non-monetary investment won’t disappear. The role of funds is to formulate the approaches for accumulation of resources for fast development of products, and entering new markets and so forth. The actual goals may change, but the focus on strategic help to projects will continue to exist. The traditional VC principles work very well in an illiquid market, so the less liquid a token is, the easier you can apply traditional approaches of VC to project work. For example, b2b decisions in blockchain, private chains and others may be interested in fund attraction to structure the work with corporate customers and further selling to a b2b player. Similarly, the more liquid a token is (b2c, p2p), the more interest venture funds with traditional team expertise in M&A present. Protection and transparency will be very important for LP investors. Safety standards must be developed in order to make the market institutionalized and big in terms of investment resources. For example, one of the key methods of fund investments (and projects) — tranching or provision of commitment for investments — will be implemented into cryptomarket through smart contracts with an escrow agent or a bank. This will provide safety for investors. The formation of huge syndicats is possible only in case if institutionalized LPs will enter the market. The process will take a long time. In short term it will be possible only if the legal nature of a token allows investors to have protection of their investments. However, financial mediators of any kind will disappear, funds and venture funds exist only because they outsource active investment functions.

Syndicats of two types will be possible — very big and very small: 1. The big ones will be controlled because there is an opportunity to control the market. The profit will be lower, but more stable (even taking regulations into account).

2. Crowd investors attraction can’t be so widespread. One startup will have trouble controlling thousands of investors (even thousands of clients) at the same time. It will be necessary to form the entire departments for making the community staying positive.

In the long term it won’t be effective, so the entry level to pre-ICO and ICO will rise. So forming of syndicats will be very interesting at the stage of accumulation of this “tail”. A minimal check will be enough to invest in a tail-fund that syndicates small checks. At the same time it will be impossible to influence the work of this fund, because it’s difficult to control. That’s why clear mechanisms of attraction and control of small checks will be formed Syndicates mean decentralization of the investment resource in this case. This will make the profits of the syndicate much lower, because it will operate slower. Besides, there will be antagonists of such a thing in a free decentralized market. About VC funds::

Traditional approaches will not die out anytime soon, but traditional VCs will be forced to change the strategy — paying attention to less technologically advanced projects and less dynamic fields, to projects that have a huge leverage in traditional economics — construction, extraction of natural resources, the public sector. A VC fund team is more about technologists, who design robots, and strategic marketers that will feel the trends of work with audience.

VCs will not only control a large number of projects, it will be less beneficial for them to make huge investments. A probable structure of exit for funds — selling on ICO and buying on pre-ICO — can influence the price of token very much, so big checks will be not beneficial for short exits. In these terms there is a conflict between project management and the number of investments in the portfolio — the principles of work with portfolio will change, About fundraising of traditional VCs

Traditional funds will have trouble building their first institutionalized fund — institutional LPs actually go through a very thorough DD. However, building further funds will be much easier, because LPs of the current funds will be easier to invest. For those who control funds of rollover benefits, that they get from exits, it will automatically result in a drop of interest to traditional LPs, that will affect how they work — they will have to be more flexible in making passive investments into funds on a fund of funds model.

Andrey Yudin, Co-Founder / Partner at CryptoBazar, Former Chief Technical Officer at Mail.Ru

The company that will kill Etherium will be the one that will offer a product, unifying the interaction of all current and future blockchains based on a single protocol of operations (send, receive, sell, buy crypt in a unified blockchain). Possible ways are either MPA or a deposit (like USDT). Besides, unification will be necessary in criteria of forming data in ICO and its assessment in terms of scam/legal correctness / reliability. Potentially, this niche can be taken by ETH, bitshares, EOS, Universa.

Eduard Gurinovich, Development director at Carprice, Managing partner at CarMoney, Former CEO at Carprice

Cryptofunds will definitely continue to grow and develop even despite the fact that 99% of projects that raised money this year will disappear in a year.

Important addition: blockchain stores all the history of transactions, in 3–4 years after a series of “empty” ICOs there will be an unerasable file on every founder: what projects he took part in, if he bought a ferrari or spent the money on a project. There will be EVERYTHING. All the costs of the founders and projects will be visible, what they spent money on. With such an amount of information even the simplest AI will be enough for making decisions automatically, plus reputation and social interactions. Collective funds can base on advisory board, on the names of those who supported the project. They can send 10–100 BTC to thousands of projects because the risk and profit ratio is abnormal now and it allows to earn 100+% per year. I wrote about insurance before: the history is cyclical, insurance companies and retirement funds are the main source of long-term money in economics. They managed to get huge benefits from small amounts from millions of people. And now the definition of profit may disappear completely in a cryptofund or a cryptoinsurance company. Everyone earns money proportionally to how much they take part in a project, how much time, money, and intelligence they devote to it. Roughly speaking, a smart contract tracks that I gave 10 BTC and attracted 3 projects, 2 of which were successful, checked 15 projects, 11 of which were successful. According to this data I can expect a share of the fund, but bigger than a simple money investment, while someone else just gave some money and bailed on it. The transparency of cryptoeconomics is not used anywhere yet, but I’m sure it’s simply a matter of time!

Igot Shoyot — Partner at TMT Investments

A GREAT article. It’s systematized (like all of your articles) and it gives food for thought. I see it as a starting point of a conversation. I even thought that I should write my answer — also systematized — but probably in English. A lot of venture funds either show very low results or just go broke. Cambridge Associates + Pitchbook study it in detail. A lot of serious research both qualitative and quantitative was done to find out why some funds are successful and other aren’t. “Burned of commitments” is not a factor in any of them. “Exhaustion” because of interaction with LP is not a factor, either. How fast decisions are made is not a factor of success. The article says that flexible syndicats will be able to compete with the leading funds on Sand Hill Road — what does that even mean? That the most successful startups will prefer them to the leading funds? Of course, not. There are many reasons why this won’t happen. The leading funds of the Valley attract new investors, help them with the development strategy (it is especially important in the late stage, that most startupers are unfamiliar with), with attraction of key business personnel, with exit and so on. Another thing is that if clients of a startup are corporations, then the fact that Andreessen or Sequoia work with it matters a lot when they have to make a decision whether to work with the startup or not. So, no, — what was written in capital letters “THE FOUNDERS DON’T CARE WHAT MONEY, WHERE FROM, HOW TO GET IT FOR PROJECT DEVELOPMENT. Investors do care, but not the founders” — this is more or less true only for the early and less attractive (sorry) startups. No, cryptofunds don’t mean death for VCs, just like Kevin Spacey’s TriggerStreet didn’t kill Hollywood, or AngelList didn’t kill incubators. Most likely, it means that a new, more interesting competitor will appear. Superfast decision making, described in the article, is certainly very interesting, and I hope it will make the traditional funds make decisions faster, too. But the speed of these decisions is not the key factor of success. Venture investments are not a boxing or even a chess match, it’s a long and difficult process of studying many aspects of the business and the market. And the last thing: almost all investors that I know watch ICO and blockchain attentively, so I think that very soon many funds will be very active at this area.

Yuri Goongin — Founder, Evangelist at Karma

It’s obvious that cryptofunds will continue to appear, because the costs of creating and maintaining them are way lower that in classic ones. Like you said in the article, most of the capital inside the ICO-whirlpool is what crypto-nerds mined many years ago. Now the entry level to the crypto-world and ICO in particular is extremely high. Huge funds can’t invest money without the legal ground. Even venture fiat funds don’t understand how to put most of the tokens in the books. It will take a year of lectures in talk shows and newspapers for housewives to get involved.

But then there is the question of the legal basis again: until there is a simple way to buy a crypt, federal media won’t start the campaign. . Recently I have made a presale of 500k USD and I can say that entering the crypt even for quite advanced people from digital ared is a mentally difficult exercise. I don’t want to offend anyone — I’m blaming patches and crutches that all the mechanisms of cryptoworld are built on. I believe that the surge of ICOs will gradually die out by the end of the year because:

There will too many projects and the average quality level will drop.

Projects that raised money 6–12 months ago will have to report how they used it. There is big chance that half of the projects won’t show anything, and the consequences are obvious.

Sysadmins from 2010 will cash their bitcoins that they earned almost for free, and the system will have no way of getting any new money. Conclusion: one of the few ways of starting a second wave of cryptomarket development, in my opinion, is the appearance of legal patterns of transition between fiat and crypt both ways. This will allow the funds and people to enter the market.

Anatoliy Ostrovsky, CTO at Nousplatform

It’s already clear that classic investment funds will cease to exists and will be replaced by funds with token assets. They are attractive for investors because the set of assets they can offer is hundreds of times bigger than in classic funds. Anything that can be tokenized, from gold to in-game artifacts can become the fund asset and be used in investment portfolios of decentralized funds. Our main idea is to create a financial meritocracy. In it the assets will be controlled by those who deserve that, which gives more guarantees to investors. This is the algorithm we are trying to implement using blockchain and decentralization.

Alexandre Naverniouk — Director R&D at PressReader, cryptoinvestor

It’s important to say, that the crypt development rate is against the investment portfolio. In my opinion, it is a significant factor that decreases the interest to investment into cryptofunds. I think, the best time for CFs will be after the time when capitalization of cryptocurrency becomes stable, so in 5–7 years.

Evgeniy Koinoff, CTO delerex.com

I loved the article because of how the author sees the process, however, there are some controversial parts. The growth of CFs is ensured by the growth of cryptocurrencies and wild discounts on the pre-ICO stage, and also by the opportunity to shut down new investors after listing. The way I see it, it will continue to work as long as there are investors at the moment of listing, which seems doubtful even now, because the quality of the project is falling and their number is growing. A million of attractions a month means that 900 thousand are scams, 90 thousand are a gamble, 10 thousand will try to do something, and only very few will produce something and increase the capitalization. In this situation only the funds with an AI will make investments, and actually I’m not sure it will handle DD. Funds can enter the insurance and credit markets only in case if the object of investment is connected to the cryptosystem. Roughly speaking, a person or a company are interested in the transparency and success of their own credit history. It is quite possible within a few years. The way I see it, the portfolios of funds will lean towards the functioning assets of the classical sector when the cryptobubble will be about to pop. However, cryptofunds will have the technological, legal and organizational advantages that you described. Also a mechanism of connection of fiat world assets to cryptoassets is needed. A syndicated cryptofund protocol is partially a utopia, because in speculation it is a zero-sum game, and if someone enters at a good price, he must take this price from less aware participants, and when he exits he needs someone to close the position. Roughly speaking, funds must compete against each other for right decisions. There are many risks about cryptofunds. The risks are partially in the profitability already, and the smaller the risks, the lower the profitability.

Classic exchanges may transform into cryptoexchanges, again, only in case there is enough legal ground for connecting traded cryptoassets to the fiat world assets. I mean that assets will tokenize and their owners will have the right to manage the basic asset provided that they comply with the technological procedure of token transfer. The idea of an AI making decisions is very good provided a high level of its development. To sum up, the way I see it, venture funds may be fading away as long as there is a chance of holding a successful ICO. This process is slowly but steadily turning into a phase when it’s not enough for a company just to present itself, but prepare a platform with marketing and internet traffic. That amounts to 250k$ at the moment. They will search this money in a venture fund or in a cryptofund of direct investments that will also estimate the project. The difference is that this is a short-term investment, and the exit will be at the time of the ICO. It will work for as long as ICOs will be organized, then venture funds will be the only way.

Dmitry Khan — strategic advisor in MiniApps.pro /MiniApps.pro project