Ardent crypto enthusiasts believe ICOs and cryptocurrencies will replace venture capital, but what if VC investors absorb crypto into their existing operations?
That’s the thesis that SparkLabs, a U.S.-Korean firm that runs multiple global funds and early-stage accelerator programs, is putting to the test with the introduction of a security token today. The firm said it is aiming to “democratize” investment opportunities by essentially allowing anyone to buy into two of their accelerator program via the token, which will essentially let them become LP-like investors.
SparkLabs’ team’s past successes include Siri (sold to Apple) and DeepMind (sold to Google), and it claims a portfolio of over 160 startups from more than 60 countries. Its accelerator program has graduated over 80 companies, 80 percent of which the firm said have gone on to raise funding at an average of $3.5 million.
The experiment covers two of SparkLab’s new accelerator programs: a six month IOT-focused initiative in Korean smart city Songdo and Cultiv8, an accelerator for agriculture and food tech in Australia.
The firm has already raised capital for both initiatives — $5.6 million for Cultiv8 and $500,000 for the IOT program — but it is aiming to bring in at least $6 million from the token. That’s the minimum sale, while the hard cap is $30 million.
SparkLabs is working with two crypto platforms to handle the token sale in terms of KYC, operations and tapping into audiences. They are Argon Group, which has a community of crypto investors, and Swarm, a platform that connects retail investors with crypto opportunities in PE and VC funds.
ICOs and tokens are in a precarious position in the U.S. while the SEC conducts an investigation into companies that raised money via ICOs and investors who backed them. Wary of that, SparkLabs is primarily targeted non-U.S.-based investors, but it said that the token is open to accredited investors in the U.S..
Unlike traditional LPs, who wait on the fund’s lifecycle to see financial returns unless they can sneak a secondary share sale, SparkLabs plans to introduce liquidity by listing the token on security exchanges in the future. That’ll make it tradeable. But the firm doesn’t advise U.S.-based investors to trade it since that is almost certain to violate the law.
Despite the legal grey areas, the firm is keen to experiment with a token, having backed a number of crypto-based companies via traditional equity investments since 2014 and also launched its SparkChain fund.
“We think the ICO market is here to stay, it’s an avenue for fundraising [that] we think will be complementary to Series B and Series C rounds,” SparkLabs co-founder and partner Jimmy Kim told TechCrunch in an interview. “As a fund, we believe in this space, and we thought we might as well dip our toes into the water and test it out.”
A number of 500 Startups’ recent batch of companies banded together to offer their own security token earlier this year, but SparkLabs may be the first established firm to adopt the strategy officially. Already it is seeing strong interest from crypto hedge funds and individuals who are looking to diversify their crypto assets, Kim said, but the theory is fairly untested so it will be interesting to see how it is received by the wider market.
Certainly, it could be the first of many.
“We’re opening the doors to investors that we wouldn’t usually reach out to,” Kim explained. “If it works out well, we’ll obviously do it with other funds in the future.”
Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.