This article by Alex Moskov was originally published at:
If you’re reading this, chances are you have experience or are interested in trading or investing in cryptocurrency.
Chances are pretty high that a majority of our readers have invested a number anywhere between $100 to $10,000 in a mixture of assets such as Bitcoin, Ethereum, Ripple, and NEO. There’s also slim minority that has taken a walk on the wild side and invested in ICOs – some getting lucky, the bulk getting burnt.
Your decisions were likely fueled by news and impulse, and since your risk was relatively low, it didn’t take much convincing to place your orders
But what happens when that $100 to $10,000 figure is multiplied by 100x to 1,000x, in some cases 10,000x. And it’s your full-time job. And it’s not your money. The landscape changes a bit.
Cryptocurrency funds have a unique task ahead of them that involves navigating through a noisy and clamorous environment to get access to high-quality deal flows and investment targets. The stakes are much higher and reputation starts to matter.
CoinCentral connected with the team behind one of the world’s leading blockchain investment firms, NEO Global Capital, at their inaugural Boston meetup. The event featured heavy hitting figures from organizations such as Arrington XRP Capital, Pantera Capital, Block72, and, of course, NGC.
The following interview provides some serious insights into the mechanics behind running an international blockchain fund, especially in the bear market that is 2018, from NGC Founding Partner Roger Lim.
Can you tell us a bit more about what gives you a sense of a good investment opportunity? What specific traits are you looking for in the team, in the idea, in the technology?
NGC’s founding team has been involved in the blockchain industry since its early days, so we are fortunate to have worked alongside some of the early adopters of the technology. With time comes a better understanding of what industries are most in need of a digital overhaul, as well as where decentralized technologies will have the greatest impact, so our experience has certainly played to our advantage.
As such, we’ve developed a strong sense of which sectors will benefit most from blockchain; what stands out in terms of a projects founding team; and whether an idea is innovative and disruptive versus one that is similar to something that already exists and can really only offer incremental improvement.
That being said, NGC has a well-rounded portfolio of investments, and we hope to continue supporting a variety of industries, including identity solutions; gaming; online content streaming; the financial services industry (i.e. banking, financing, payments, and exchanges); and so on.
We will also continue to invest in public chains, as well as privacy and security projects because we see them as strong examples of addressing a specific problem. Overall, it’s important to look at how competitive the market is for whatever that project is trying to solve.
Perhaps most importantly, we place a heavy emphasis on the strength of the team at the heart of a project: Does this project have strong leadership? What is their experience? Do they have high success rates from previous projects? A strong team is often the best indicator of whether or a not a project will succeed.
Could you tell us a bit about the fund’s relationship with NEO?
Our affiliation with NEO is a strategic one that allows NGC to fulfill its position as a leading investment firm. While NGC is a fully independent entity, we are long-term believers in NEO and have created a dedicated fund aimed at fostering the growth of the NEO Smart Economy ecosystem. Through strategic capital deployment, project incubation, and utilizing all of our available resources, we believe that we can help accelerate the growth of the overall crypto market.
The NGC Fund I seems to be a newer fund compared to the NEO Eco Fund. Can you explain what are the differences between the two funds, in terms of objectives and potential investment targets?
The NGC Fund I is our for-profit fund, where we invest in the most promising and innovative projects related to blockchain. Our wider interest is in advancing the industry, so we invest in projects that have strong use cases and can help drive the mainstream adoption of blockchain.
Our second fund is the NEO Eco Fund and our goal here is to promote the growth of the NEO Smart Economy ecosystem. In alignment with our belief in NEO, we occasionally invest in projects that would specifically benefit from NEO’s infrastructure.
Overall, the goal of both funds is to help startups create lasting competitive advantages in an industry that’s become very crowded, very quickly.
What kinds of short-term targets and goals do you typically agree with a startup firm once you have decided to invest? How do you go about agreeing on these targets?
Goals, objectives, and targets differ depending on the type of projects we are supporting. If it’s a public chain, for example, we would work with the project to identify gaps in the technical team, the roadmap, and milestones in advance of the mainnet launch. We are generous with our time for each of our investees; we want them to succeed, and if they wish to tap on the experience of any of our partners or reach out to our network, they have the full backing and support of the firm.
It tends to be typical that venture funds require a founding team to have a longer-term target that the company should be sold within a set period of time. Is it any different with NGC? What kind of timeframe do you work to for long term goals, and how do you define long term goals?
In general, token investments achieve liquidity a lot faster on exchanges than equity investments (months rather than years). Nevertheless, at NGC we want all our investees to succeed whether we make a token or equity investment. We still hold tokens of many of our investments and we continue to work with them and expect them to continue their growth, development and to achieve the key business objectives over the coming years.
Are there any advantages to operating a cryptocurrency fund in a bear market?
In a way, bitcoin’s dramatic rise last year has solidified the blockchain industry: there is now an interest in blockchain and cryptocurrency that did not exist previously. As we move away from the crypto mania that ensued, the benefit of operating our crypto fund in a bear market is that most projects now come with good intentions.
This is not to say we have completely eliminated bad actors, but there were certainly more projects and players that emerged in the market at its peak when there was a greater opportunity for quick wins. Likewise, the current market allows investors to spend time researching, understanding a new technology or problem a project may solve — in a bull market, investors may act from a fear of missing out.
In addition to good valuations, the current market has produced stronger projects with experienced leadership teams, compelling use cases, and cutting-edge tech. We believe that the competitiveness of the market has not decreased in any way.
What separates a high-quality investment fund from a low-quality one?
A high-quality investment fund is one that makes educated and thoughtful investment decisions. One thing we are very proud of at NGC is that our founding team comes from a varied background of crypto investment, traditional financial markets, emerging technologies, and mergers and acquisitions.
We would say that the best investment funds are those that are able to marry their crypto-specific knowledge with experience from more traditional verticals, thereby taking a more well-rounded and considered approach to investment.
A major component for any investor in the ICO space is access to deal flow. What gives NGC an advantage here? Do you have any advice for smaller retail investors?
A strong reputation for helping projects post-investment is important and also entices more founders and entrepreneurs to want to work with us. We not only work closely with, but we welcome other funds to work with us to share deals, insights, and expertise. We strongly believe in collaboration and that a variety among blockchain investors (geographical expertise, background, and networks) brings diverse experience and immense benefits to a project.
As for retail investors, As Warren Buffet once said, “never invest in something you don’t understand” so definitely do your research, understand what you are investing in; and diversification is important. Cryptos are highly volatile and therefore risky, weigh up the risks before diving in.
Looking out on the wider market which is becoming very crowded. From the ICOs that have been completed so far in 2018, which ones stand out to you as being unique or otherwise interesting opportunities?
We think all the projects we have invested in have innovative teams and unique solutions to today’s problems within the industry. Ontology, for example, provides a solution to digital identity; Certik solves security problems in blockchain with formal verification; Hadron helps enterprises like NASA outsource their computation tasks with a large user and device population so that these tasks are done efficiently and timely. All hugely ambitious projects making immense progress and we look forward to supporting them in the future.
How does the NGC team reach an agreement over which projects to invest in, or not?
While there are no hard and fast rules, a strong product, an effective business plan, and an ambitious, goal-orientated founding team would certainly be the cornerstone of what we consider a promising venture. Each of NGC’s partners understands that investors are interested in seeing and investing in projects that are both unique and impactful, so we are often in agreement when it comes to whether to invest or not.
In your view, what is the outlook for the overall price of Bitcoin and cryptocurrencies over the next 12 months? What are the crunch points that may end up turning the markets in one direction or another?
If I had to hazard a guess – I would say bitcoin could see new highs over the next 12-18 months. As regulations, standards, and infrastructure become more mature, I expect the market to react positively.
What would be your single best piece advice for any founders of an ICO or blockchain startup?
As the blockchain space becomes increasingly noisy, a recommendation we always make to founders and entrepreneurs is to consider whether or not they really need blockchain. Focus on the problem you are trying to solve and decide if blockchain is truly the solution.
What is the outlook for NGC as we move to the end of 2018 and beyond?
Our primary interest lies in advancing the industry of blockchain towards mainstream adoption, so as we move towards the end of 2018, we will continue to strive towards that goal by investing in the most innovative projects; sponsoring higher education initiatives; and facilitating conversation between industry leaders and business professionals that will address what the industry needs, where exactly the market stands, and what steps can be taken in the New Year to advance the industry as a whole.
In line with this, we’ve recently invested in several key blockchain-focused initiatives in higher education: most recently at Berkeley and the National University of Singapore. We also held our inaugural meetup in Boston to discuss project funding and development, best investment practices, and emerging industry trends. We plan to do more of this as we wrap up the year, and hopefully into 2019.