Venture capital in the crypto-market – Web 3.0 doesn’t come out of nowhere

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About coinIX

coinIX is a listed investment company specializing in crypto and blockchain investments. By acquiring a coinIX stock, investors should gain access to a diversified portfolio of crypto-currencies, token projects and equity investments and thus participate in the performance of the crypto-market and Web 3.0. As a venture capitalist, coinIX now holds more than 30 investments with a focus on DLT solutions and digital assets and is currently listed on the Düsseldorf Stock Exchange with a market capitalization of around EUR 6 m.

One of coinIX’s early investments is “The Graph” which is often understood to be the Google of blockchain, as it is an indexing protocol that makes data on a DLT available and searchable on demand. This means, the company aims at funding young and promising crypto-projects.

The fascinating world of DLT & digital assets

Mr. Schildt, we would like to start with a personal question to understand your motivation for working as a venture capitalist in the crypto-market. What triggered your fascination with distributed ledger technology (DLT) or digital assets and what specifically prompted you to found coinIX in 2017?

Actually, I’m not a typical representative of the blockchain and crypto-community: I’m a lawyer. I have been working in the traditional financial sector for more than 20 years and first heard about Bitcoin in 2013. The idea of using the Internet not only to gain or share information, but also to transfer property rights, immediately impressed me. What is also important to the concept of “DLT”: we don’t entrust our data to the operators of central databases; instead, everyone can handle their own data themselves. In this way, a community of users ensures security and integrity. As asset managers, we were keen to explore how we could create an opportunity to invest in this new technology and participate in its future potential.

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Two years after coinIX was founded, the company went public in 2019. What drove the company to take this step and what is your vision of coinIX for the next five years?

A company whose stocks are traded on a stock exchange is quite old-fashioned, but for traditional investors it’s a very simple way to participate in this market. Currently, mutual funds are not even allowed to acquire crypto-assets, and direct investments in the sector are not everyone’s cup of tea. coinIX has been an investor in this sector for five years together with Omri Erez and Susanne Fromm. Omri has been with us from the beginning as Chief Investment Officer and has built up our network and thus gained access to interesting projects. We hired Susanne as CEO in 2021. She has accompanied traditional digitalization projects for many years and invests in a large number of crypto-stocks herself. With this team we want to continue to grow, to accompany the more than 30 projects and companies that already exist today and to steadily expand the portfolio.

Venture capital in the crypto-market

Venture capital investments in crypto-start-ups totaled approximately EUR 26 bn globally in 2021, more than tripling since 2018.^[1] In your opinion, what are the reasons for this enormous increase and are the initiatives in the context of Web 3.0 currently sufficiently financed or is more capital still needed – and if so, why?

Web 3.0 based on blockchain technology acts as a turbo boost for the next wave of digitalization. In Web 2.0, we can digitalize, gain and share information. For many travel agencies and bookstores, this was disruptive. With Web 3.0, trust also works digitally, so we can assign or transfer assets. This time, disruption through digitalization will have a massive impact on the financial services sector in particular, as ultimately every financial transaction that is currently reflected in a bank deposit or bank account can be handled and settled much more efficiently by means of DLT in the future. Tokenizing a physical piece of art to give a multitude of people a right to participate is only the first step. Sooner or later, we will create, issue and transfer special funds, then mutual funds and finally, in addition to tokenized common and preferred stocks, a wide range of alternative financing instruments up to and including swaps, exclusively in digital form.

Since the blockchain enables an immediate move-by-move transaction, the settlement is not “t+2”, but instantaneous. The blockchain assumes the function of the central clearer; no trading lines are required. The investment volume to date shows the potential – we expect this to increase significantly in the coming years. Even today, attractive blockchain projects don’t have to worry about funding partners, but can often choose their investors.

Investing in crypto-assets or even blockchain companies proved to be very risky in the past. What criteria do you use to select your investments and what does a typical due diligence of an investment case look like?

In general, the risk profile of a blockchain start-up isn’t much different from other tech projects. That said, we see more frequent funding via tokens, which are then listed on an exchange and therefore often subject to volatility in the crypto-market. On the other hand: sectors with high volatility also offer special opportunities and allow for high profits. Due diligence focuses on applicability and scalability. Whoever develops a platform or protocol early on in the decentralized world will become the decentralized equivalent of Google or Amazon in Web 3.0. In addition, we pay attention to tokenomics, i.e. the logic by which a token is created or can be acquired, what rights are associated with it, how it can be exchanged and when it is “burnt”, i.e. destroyed. There are hardly any standards here so far; each project must be analyzed individually.

coinIX: embracing risks?

According to your website, you use investments in liquid crypto-currencies like Ethereum and Polkadot for liquidity management. But isn’t their volatility far too high to safely manage the cash share of your portfolio? Wouldn’t stablecoins be a better alternative?

Our stockholders want coinIX stock to represent exposure to crypto and blockchain. Therefore, it makes sense if we don’t leave our liquidity in euros in the bank account, but invest in crypto-currencies in a diversified manner. Volatility means that our liquid portfolio, whose value we determine and publish on an ongoing basis, already fluctuates significantly with the market.

Frequently, portfolio companies are offered consulting services by venture capital firms in addition to the provision of venture capital. Is this also part of coinIX’s business model and if so, how does a portfolio company envisage such a consulting service? Or do you see yourself exclusively as a passive investor without any consulting services?

Definitely, the role of a passive investor doesn’t correspond to our self-image and aspiration and would also not be sufficient to gain access to exciting projects in the Web 3.0 environment. We play an active role in the blockchain and crypto-scene, attend conferences and help our portfolio companies become better known and attract new customers. Having invested in more than 30 projects and having examined a much higher number of start-ups, we cannot only provide qualified feedback as a sparring partner, but above all offer added value by providing contacts to potential cooperation partners and pilot customers or even further investors.

Tokenization & Web 3.0: buzzwords or the trading of tomorrow?

In addition to crypto-currencies and security tokens, the market for NFTs (non-fungible tokens) is hyped. Are you also active in the NFT market with coinIX and if so, what do you expect from investing in this sector or why are you not active here?

Technologically speaking, NFTs, or “unique” tokens, will significantly expand the scope of blockchain technology, and we see great potential here. We believe that in the coming years property rights for digital and physical pieces of art as well as patents, licensing rights, certificates, qualification certificates and commonplace certificates of participation in the form of NFTs will gain importance.

So far, NFTs are best known for the huge increases in value for tokenized digital computer art in the form of monkey paintings, etc. We’re rather cautious here and are still waiting for real use cases. The metaverse, i.e. a virtual world in which users can acquire virtual properties as NFTs via the blockchain, also holds great potential. However, we haven’t yet acquired any NFTs directly, but rather rely on the technology that enables such transactions and helps companies to offer their products and services in the metaverse in the future.

The crypto-market has plummeted tremendously since the beginning of the year. What does this mean for your company and where do you think the crypto-market (esp. in terms of token projects and Web 3.0 applications) will develop in the next few years?

Yes, there was a significant price correction, which also helped to shake out the market. We see ourselves as long-term investors; we added to Bitcoin at a price of USD 3,000. The rise to an all-time high well above USD 60,000 was a very pleasing development, just as the decline to currently around USD 20,000 isn’t a complete disaster. We’re not leveraged and are broadly diversified, so we can handle the price fluctuations pretty well. Over the past five years, a Bitcoin investment has significantly outperformed any other asset class. We believe that prices in the crypto-market will recover much faster than in the traditional capital market and will again reach and exceed previous all-time highs.

Thanks for the interview Mr. Schildt. We wish you and coinIX all the best for the future.