In 2015, Bitcoin and blockchain companies closed 74 deals, raising a total of $474 million USD in venture capital, an all-time high, according to a new report by CB Insights and KPMG. The three largest deals in the bitcoin space were also the three first Series C funding rounds, suggesting that the venture capital space is continuing to mature to mid-stage.
Bitcoin Venture Capital Shows Signs of Maturing
Released today, CB Insights and KPMG’s “The Pulse of Fintech” provides a global analysis of fintech venture funding. The document suggests that 2015 was the year that fintech entered the mainstream, with a record of $13.8 billion USD being invested globally into VC-backed companies.
In a dedicated segment, the report dives deeper into the bitcoin and blockchain space, pointing out that figures suggest a maturing VC space. In 2015, we saw the first Series C rounds — and the largest deals in the bitcoin space so far — with investments in 21 Inc. ($111 million USD), Coinbase ($75 million USD), and Circle Internet Financial ($50 million USD). Seed deal share fell to 53% in 2015, against 65% in 2014, 70% in 2013, and 100% in both 2012 and 2011.
Interest in Blockchain Gains Momentum
Interest in blockchain technologies grew significantly in 2015, and a wide range of companies are exploring the technology as the potential solution to numerous challenges both inside and outside the banking sector.
According to the global co-leader of fintech at KPMG International, Ian Pollari, blockchain technology “is a notable example of an emerging technology that offers enormous potential to the financial services industry.”
“However this needs to be balanced with the reality that substantial barriers must be overcome in order for this potential to be realized,” he said.
While the potential is appealing, there are still significant obstacles to overcome to successfully implement blockchain technology in the mainstream components of the banking system. These challenges include reaching the scalability and speed levels needed by banks to conduct day-to-day activities. Additionally, there is still a long way to go before gaining widespread regulatory acceptance for blockchain.
“Investors looking for immediate, short-term success may be disappointed,” the report says. “Corporate investors need to qualify their expectations when it comes to blockchain and the obstacles associated with achieving value.”
The technology is not a silver bullet that can solve every problem tomorrow. To get the most value, corporate investors […] need to encourage industry-focused engineers to define the problems blockchain can help resolve, find the best and most costs effective technology solutions and work through limitations to scope, scalability, velocity and usability.
That being said, there are many reasons to continue to pursue innovation in the bitcoin space. One area where banks are especially excited about is digital entity. Improvements in this field could enable better choice and portability of customers between financial institutions, ultimately leading to higher customer satisfaction, the report says.
Time for Experimentation
Blockchain technology is still evolving, and the firms claim that now is the time for experimentation, not for “wholesale technology implementation.”
The document reads:
Corporates that encourage use-case testing –whether for the securities trading lifecycle, the processing of a loan, or digital identify verification –and who can learn from this experimentation can be better positioned to adjust course and achieve the most value.
More widespread implementation at this stage could have serious financial consequences should the technology not live up to expectations.
The report advises venture capital investors to take a balanced approach to their blockchain investment strategies, noting that blockchain protocols and solutions still need improvements concerning reliability, efficiency and scalability requirements.
“The ability for blockchain to become a true game changer is still in progress,” it says. “Investors need to look beyond the hype and ensure that any technology solution is underpinned by exceptional engineering, a full understanding of the barriers, and clear economics on the cost and benefits associated with the technology.”
What do you think about the blockchain venture capital craze? Let us know in the comment section below!
Image courtesy of Pictures of Money, via Flickr; Chain via Wikipedia.