BlockStart has asked its external mentor David Chreng-Messembourg, Founding Partner and Early-stage investor at LeadBlock Partners, to give our community a reflection on how investors look at blockchain startups
I am David Chreng-Messembourg, a founding partner and investor at LeadBlock Partners. We invest in B2B startups which use or are implementing blockchain technology, and back founders at a seed/series A stage to help them drive their business forward. At LeadBlock Partners, we are blockchain protocol agnostic and focus solely on the application layer — B2B Blockchain solutions. The application layer will become increasingly important as technology matures. I think it will play an essential role in the blockchain ecosystem, acting as a bridge to connect the decentralized and industry corporates’ worlds.
It is interesting to see how the Blockchain ecosystem has evolved and grown over the past decade, with the US historically leading the way for Blockchain startups funding, powered by specialised funds with 20x more AUM than in Europe. That being said, Europe is now catching up, with growing startup funding needs, client traction and corporations interest.
Misunderstanding, and lack of knowledge about blockchain technology has historically been a barrier to investing. According to our Enterprise Blockchain 2020 report, 80% of investors aren’t familiar with blockchain technology, nor its application and benefits. The gap is also apparent as our study revealed that 60% of investors do not differentiate between cryptocurrencies and blockchain technology.
However, how come investors focused and first questioned blockchain technology? I believe the simple answer is that startups branded themselves as ‘blockchain startups’. Unfortunately, this was not always in their favour. The USP (Unique Selling Point) of a startup is not and cannot only be blockchain technology, AI or ML.
For instance, I have come across many startups focusing on ‘tokenisation’, and only offering the tech, which in my view isn’t sufficient. Offering only the tech to ‘tokenize’ ownership, for a startup in need of capital sounds similar to only setting up an e-commerce website for a retail store in need of customers. Put simply, facilitating the exchange of ownership (enabled through ‘tokenisation’) does not create liquidity nor bring new investors. Similarly to facilitating the sale of goods online (enabled through an e-commerce website) doesn’t bring new customers — it is ‘simply’ a tech tool.
Our advice as B2B investor to startup founders is to tell us why your customers need your product and pitch the product without using the word blockchain. Start with the industry challenges, move into how your product is differentiated and solve those challenges, only then dig into what are the technological constituent of your product architecture.
Although our focus is on B2B Blockchain startups, as early-stage investors, our discussions with founders mainly focus on the team, product market fit, business model, go to market strategy. This should be the driver of the conversation with investors, about your product offering, how differentiated and useful it is to your customers. Blockchain should ‘only’ be the tech enabler.
Author: David Chreng-Messembourg