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Most ICOs Will Not Result in Viable Product, Investor Estimates

Q&A

Most ICOs Will Not Result in Viable Product, Investor Estimates

Mangrove Capital Partners plans to invest tens of millions of dollars in Israeli blockchain companies, according to partner Roy Saar

Meir Orbach  :  2018-02-28T16:44:40..
European venture capital firm Mangrove Capital Partners was the first to invest in video-chat company Skype, sold to eBay in 2005 for $2.6 billion, and the first institutional investor in Israeli website building company Wix.com Ltd. Now, Mangrove has set its eyes on Blockchain. According to Mangrove partner, Israeli-born Roy Saar, the VC is planning to invest tens of millions of dollars in Israeli blockchain companies.

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Mr. Saar spoke to Calcalist earlier this month.

Q: What are you looking for in Blockchain technologies?

A: I’m looking for infrastructure. We believe in this technology, but not in the bubble that has formed around it. The technology has been around for a decade, but up until 2017 there were few companies who built infrastructure for coins. Now, we are seeing infrastructure in areas beyond coins, in smart contracts, payments, shipping, and more.
Roy Saar, partner at Mangrove Capital. Photo: PR Roy Saar, partner at Mangrove Capital. Photo: PR Roy Saar, partner at Mangrove Capital. Photo: PR

Q: What do you see in the industry today?

A: We are seeing a maturation of the blockchain market. I believe many of the companies that conducted a crypto offering in 2017 will disappear. Hundreds of companies that conducted a crypto offering last year and I estimate that 90% will not reach product. This is not surprising because those are the statistics for new startups. The problem is, these are not startups that raised a few hundred thousand in Seed, these are companies that raised millions in ICOs.

Blockchain can be the next growth engine of Israeli industry. There is a strong academic base in cryptography, and a strong and connected business community. The only thing missing is regulation, and this is why we are lagging behind.

My argument is that crypto is like an M16 rifle: in the hands of the military or police it is a positive thing, but when a terrorist gets a hold of one, it is a different story. We are trying to draw the line and define what is legitimate and groundbreaking and what is suspicious and dangerous.

Most coins today are experiencing fluctuations that are too extreme for most investors. One of the things that can change that is the introduction of stablecoin.

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Where are you going to be investing?

We enter at an early stage, so we will invest in pre-seed, seed, and early-stage companies before ICO, while they are building their product and marketing systems. We are involved today in companies that first raise equity, build products and go into an ICO when the ecosystem is ready for it.

How can a venture capital fund make money in blockchain?

The first way is through coins distributed by the company at the time of ICO, which we could then realize. At the moment, there are many restrictions on the liquidation of cryptocurrency in Israel, but I believe we will see a regulatory change before the end of the year.
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