Billion venture capitalist Tim Draper announced last month that he was planning to purchase a novel digital currency that a US-based technology startup is offering.
The famous venture capitalist has long been an enthusiastic backer of bitcoin, and the blockchain financial ledger technology that supports it. He gained prominence in the cryptocurrency community after purchasing a staggering 30,000 bitcoin that belonged to Silk Road during the US Marshal Services auction. Given his longtime support of bitcoin, it came as a surprise to many that Draper would consider investing in another cryptocurrency.
Draper told Reuters that he would be participating in what has been dubbed an "initial coin offering" - or ICO - being offered by Tezos, a new block chain platform. Draper also reportedly plans to invest in the company that created Tezos, the US-based Dynamic Ledger Solutions, but hasn't divulged the details of this just yet. Draper's decision, which could have been partly motivated by the recent surges in bitcoin value, will not only give Tezos an important boost but may also prove influential in changing the way investors and specifically venture capitalists view cryptocurrencies.
Tezos: The Latest in Block Chain Platforms
Tezos is essentially the latest kind of block chain platform. It is the brainchild of husband and wife team Kathleen and Arthur Breitman. Arthur reportedly worked at the high-frequency trading desk at Goldman Sachs and then later went on to work as an options market maker at Morgan Stanley. Kathleen was reportedly a management associate at Bridgewater Associates, one of the biggest and most prominent hedge funds in the world.
The major difference between Tezos and other cryptocurrencies is that it allows for decentralized and automated updates, as all other cryptocurrency platforms using block chain make use of a centralized update system. In overcoming this hurdle and successfully decentralizing updates, Tezos has successfully attracted quite a bit of attention for itself in the word of cryptocurrencies.
In addition to their unique approach to cryptocurrency, the couple is also taking a unique approach to the ICO and is not planning to cap it at any set number of tokens. Rather, the idea is to let people buy as much as they want.
Draper's Seal of Approval and the Future of ICOs
Draper is without a doubt a very well known name in investor circles, having previously invested in Skype. His decision to invest in the new cryptocurrency could prove instrumental in changing the perception of initial coin offerings (ICOs) and helping them to gain traction in the investor community. It is now becoming increasingly common for block chain startups to raise capital by developing and then bringing to market their own currencies in these kinds of initial coin offerings (ICOs). However, the issue is that these offerings are pretty much entirely unregulated and bypass the banking industry almost entirely. Given Draper's prominence, his decision to participate in the ICO will give this mechanism for capital raising a new seal of approval, which could potentially mean increased attention on ICOs from the investor community.
Nevertheless, on the flip side of things, many analysts argue that while Draper's enthusiasm in ICOs may pique the interest of other prominent investors and venture capitalists, there are still restrictions that will preclude many of them from participating in ICOs. For example, the vast majority of traditional venture capital firms are not allowed to deploy cash into high-risk assets like cryptocurrencies and are prohibited from doing so in their agreements with investors. Draper has said that he is not subject to such regulations in his contract terms with investors and that his firm has money specifically set aside for non-traditional investments.
"The best thing I can do is lead by example. Over time, I actually feel that some of these tokens are going to improve the world, and I want to make sure those tokens get promoted as well. I think Tezos is one of those tokens." Draper explained, commenting on his decision to invest in the new cryptocurrency. "I think most investor contracts did not anticipate something like an ICO. But we did anticipate that certain things are going to happen, and finance is going to be transformed."1
So, will Draper's investment inaugurate a new era of ICOs? While his participation in and approval of the process is certainly a step in that direction, many other venture capitalists do still face hurdles in getting their money into ICOs. Only time will tell exactly how things play out.
1) CNBC. Billionaire bitcoin enthusiast Tim Draper is backing a new cryptocurrency for the first time