There has been a lot of hype around blockchain technology for years now. Notably because of bitcoin, ever since Satoshi Nakamoto published his white paper in 2008. What the technology could do that would completely change the world. It was hailed as potentially truly transformative for the financial services industry. Maybe it will in time but so far it has not. These days, it is pretty hard to make sense of the real trends with all this noise around cryptocurrencies. However, there are some excellent use cases beyond that. Blockchain technology is much more than just crypto. And a few people know that and are investing in promising blockchain startups. We asked a few question to Baptiste Cota, Founding Partner at LeadBlock Partners, about what it is like to work in venture capital with a focus on blockchain.
Tell us more about LeadBlock Partners
LeadBlock Partners is a European venture capital fund investing in B2B blockchain startups. We back founders at Seed and Series A stage and help them drive their business forward. Our goals are to invest in the future of the data economy, drive blockchain adoption, fill the European blockchain funding gap and build strong bonds between blockchain start-ups & corporates.
Our thesis is to invest in blockchain entrepreneurs building the future of the Data Economy. Big Data is only getting bigger, more data has been produced in the last 4 years than over the combined history of mankind. The global economy feeds on this data and securing and processing it is becoming essential. We believe that blockchain as a foundational technology which combined with others (AI/ML, IoT, Cloud etc.) will transform how industries own, share and harness Data.
Why did you decide to become a VC and start a fund?
I decided to launch LeadBlock Partners as a natural evolution of my investor background, having worked in equities research and asset management at Goldman Sachs and Rothschild, combined with my interest in the blockchain space. I started to do more research when blockchain technology went further than payments with smart contracts. The concept of Ethereum’s “world computer” opened up a lot of opportunities. Although I saw potential, I couldn’t get myself to take large positions in cryptocurrencies simply because you cannot derive a fundamental valuation. Therefore, I started mining and looking into the startup space.
Over time, blockchain’s potential for enterprise software became clear to me with fintechs leading the way. With Jean-Marc Puel and David Chreng-Messembourg we decided to see whether on one side there were enough startups to invest in, and on the other whether corporates were interested to work with them and buy them out. We validated both hypotheses before launching the first enterprise blockchain fund.
I decided to quit Goldman Sachs after coming out of a meeting with the innovation head of a top European company. It was clear to me that there was a gap to fill, and we were the right team to do it.
What is it like to work in Venture Capital focused on blockchain?
It is exciting and busy. It is exciting because I believe we are only scratching the surface of what can be done with blockchain technology. New products and business models that we cannot fathom today will continue to emerge over the next decade. This will also be driven by continued improvements in terms of privacy, scalability and ease of use of the underlying blockchain protocols.
It is busy because it is a very active, innovative space. There are thousands of startups launching products and looking for funding which we are analysing.
Any particular use cases in financial services that you are excited about?
In financial services, I am particularly excited about startups which are changing the backend infrastructure of the banking system.
The banking sector is more resilient than it was before the global financial crisis, but its profitability has suffered. This is mostly due to growing capital requirements, cost inefficiencies and competition. A resilient and profitable banking sector goes hand in hand, and it is key to support GDP growth.
Blockchain applied correctly has the potential to reduce opex, capital requirements and liquidity buffers. It can do so by streamlining transactions, reducing or removing counterparty risk, providing better access to liquidity etc. This will lead to improved Return on Equity (ROE), bank resiliency and lending capacity.
Central banks have realised that and have launched dozens of trials and proof of concepts to explore what could be done with Central Bank Digital Currencies. On the startup side, a good example is HQLAx which improves liquidity management and has recently raised €14.4mn from BNY Mellon, Goldman Sachs, BNP Paribas Securities Services, Citigroup and Deutsche Börse Group.
What’s your view on the recent bitcoin rally, and what do you think the impact is on the blockchain industry?
The bitcoin rally bring the spotlight onto the blockchain industry which includes crypto and all other applications. This helps drive more talent into the space who will become the founders, developers, salespeople of tomorrow’s blockchain unicorns.
On the investment side we are seeing growing interest from institutional players, funds, family offices and high net worth individuals to get exposure to the space. The rally raises questions and improves the global understanding of blockchain technology. This is key as today there is less financial capital than human capital as talents are pouring in.
Last but not least… Who should reach out to ask for funding?
Any founder of a B2B startup with a blockchain application should reach out to us. We invest in Seed and Series A rounds, and we are happy to start the discussion early.