The preachers of the cryptocurrency world in the past few months are still declaring. “The prevalence of ICO will end the traditional venture capital investment, and allowing entrepreneurs to control the fate of themselves.” While the latest information from Silicon Valley Shows that traditional investment institutions such as venture capital have not been ended by crypto revolution and they have fight a way in the crypto world.

Traditional investment institutions are not sitting on their feet and have already entered the pre-ICO private sale.

A few months ago, traditional venture capital was confused by the menacing ICO. It seems that blockchain projects have acquired new financing channels and they don’t need venture capital any more. However, recent data shows that funds invested in cryptocurrency began to shift toward the private sale and pre-sale phases, while the amount of investment in ICO tends to decrease.

Blockchain companies are less dependent on ICOs

Venture capital has entered private sale and pre-sale of tokens, the ICO boom has become cooling. According to CBInsight's statistics, in April 2018, there were 125 ICOs on the market, which raised about US$600 million in funds, which was significantly lower than that in December 2017. In December last year, there were 215 ICOs in the market, raising US$1.2 billion in funds. The calculation of the size of the capital raised has also shown a downward trend. Of course, this has to eliminate Telegram's private sale and the ICO of the one-year EOS project.

The pre-sale of tokens has its advantages and disadvantages. On the one hand, they are relatively risky and the regulators do not adequately monitor them. On the other hand, they transfer risk to qualified investors and risk investment institutions, which is a good thing for consumers and regulators.

As regulators continue to crack down on open ICOs, crypto players generally predict that the trend of venture capital funds to shift to pre-sale and private sale of tokens will continue.

Securities-type tokens will be new species that subvert traditional venture capital

Indeed, the token economy has come. Risk capital is adjusting its attitude and actively participating in it. In the coming years, blockchain based tokens will provide new tools for venture capital funds to raise capital and maintain control over the investor community. “Securities-type tokens” may be new species to subvert the traditional venture capital industry.

In venture capital, the usual contractual model between a fund and its limited partners is to lock the capital before cashing out. Since the fund's assets are usually investments in startups, whose liquidity is relatively low. If the redemption requirements are met, the fund will face extremely high costs if they wanna redemption . Therefore, this kind of lock-in is reasonable, and passed the insufficient investment liquidity Features to limited partners.

There are already some cases in the market. In 2017, Blockchain Capital raised $10 million by issuing a blockchain token BCAP; BCAP investors can cash out 10 years in advance by selling tokens to other investors in the parallel market. Josh Stein, the CEO of Harbor, found that in this way, funds can lock in capital, but they do not need to lock in investors.

If companies want to legally and easily trade the "shares" of the funds they hold. Two major reforms must be implemented: a compliance agreement and a regulated trading platform. When BCAP came out, neither of these areas existed, but now it has begun to rise.

One of the incentives for such “token” financing is the concept of “non-liquidity discount”, which means that under the same conditions, assets with higher liquidity are higher than assets with lower liquidity because of a higher risk premium is required to compensate for the weakness of liquidity.

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