When Tal Elyashiv and his partners decided to create a VC fund for companies in the distributed ledger technology and blockchain space in 2017, they were in many ways starting from scratch. It’s a bet that has paid off handsomely.
Mr. Elyashiv is the founder and managing partner of SPiCE VC, a fund providing its investors exposure to promising companies in the tokenization and blockchain ecosystem.Together with cofounders Carlos Domingo and Rene Eichenberger they applied decades of lessons gleaned from their careers in finance, technology and investing to create what could be one of the bridges between serious investment capital and the DeFi space.
The trio bring strong pedigrees to the task. Mr. Elyashiv has been a senior executive at large corporations and was the CIO during Capital One’s early years. He also had a senior role at Bank of America, at the largest fixed income institutional trading platform and for an online gaming platform. A regular early investor, Mr. Elyashiv founded many companies, including one in China in the late 90s and one eventually purchased by Intuit.
“I’ve been on all sides of the deal table between startups, investors and corporations,” Mr. Elyashiv said.
Mr. Domingo was formerly the CEO of two Telefonica arms and of several other companies. Also an early investor, he founded several companies including Sling Ventures, Securitize, and Dubai Angel Investors. Dr. Eichenberger founded Crossbow Ventures, a $200 million AUM VC fund, ClearSky, now in a $1 billion partnership with Nextera, and Pulse Evolution (now FUBO) which has a $1 billion market cap.
That collective experience was crucial in the early months when the trio were repeatedly told what they envisioned couldn’t be done. It was in the middle of the ICO craze when you could list a token representing anything and people would throw money at it. In one sense it was a great time to introduce SPiCE VC as it was meant to solve liquidity problems but in another it was a pain because many suggested doing an ICO.
An ICO was quickly ruled out because what SPiCE VC wanted to create would have definitely been a security, Mr. Elyashiv explained. But the technology behind an ICO was relevant to solving the issue. If they could securitize and tokenize a limited partner’s interest it could open up and simplify the VC industry at the same time.
In traditional VC formats, when a limited partner wants to sell it can take nine months and plenty of legal bills, Mr. Elyashiv explained. If you can automate and simplify that problem you catch the attention of the big players.
The concept was too much for some to grasp. The partners approached several token issuers, described what they were trying to do and were rebuffed every time.
“All of them with no exception said ‘it’s too complicated, it cannot be done’,” Mr. Elyashiv recalled.
Oh yes it can, they thought. Armed with a clear vision but no precedent, the team built the concept in their minds and envisioned what the exchanges would look like along with the ties uniting them. Halfway through they realized that was too significant to be included in a VC firm focused on this new industry, so they developed it as a stand-alone company. Securitize’s success validates that decision, Mr. Elyashiv said. SPiCE VC was the first token issued on Securitize.
Even as SPiCE VC began developing, they encountered naysayers, Mr. Elyashiv said. Some industry types still scoffed. Not anymore.
“Two years later, three years later, it’s much easier,” Mr. Elyashiv said. “You see the industry moving in droves into that technology.”
A simpler process makes it feasible for smaller investors to participate, Mr. Elyashiv explained. While few can risk the normal $1-$20 million, many can invest $10,000 and even spread that around.
“It doesn’t matter if it’s only for accredited investors, it still increases significantly access to that asset which is a very lucrative asset,” Mr. Elyashiv said. “It’s significant because it changes the whole underlying capital markets.”
Major players changing the space
The timing is perfect, as major institutional players are moving into the space, Mr. Elyashiv said. Mitsubishi UFJ Financial Group, Goldman Sachs, NASDAQ, and JPMorgan Chase are participating, and it is not the philosophical play that others have made. And that is fine because this will be what creates significant positive change.
“They invest in technology not because it’s cool, not because it democratizes anything but because it’s a much much simpler, easier, faster and cheaper way to do the same thing we’ve always does and reduces the complexity of complex transactions,” Mr. Elyashiv said.
SPiCE VC has been rewarded with their early vision with a rich pipeline of opportunity from companies which are often in the post-seed, pre-Series A stage. They have invested in 16 companies since 2018.
INX is building a fully regulated security token trading and fully-regulated digital asset platform. It aims to be a FINRA-registered broker-dealer and to launch the first SEC-registered security token offering.
ARCHAX will soon be a London-based institutional-grade digital securities exchange.
Being early to the space and having a strong showing to date has earned SPiCE VC a strong industry credibility, Mr. Elyashiv said. Its “firsts” include being the first fully-tokenized VC fund, issuing the first digital security in a fully -regulated way across multiple spaces, the first digital security to be traded on a fully-regulated marketplace, and being the first digital security to be traded on an Asian exchange.
“A lot of firsts in the industry puts us constantly on the leading edge of technology so we truly understand where the value is,” Mr. Elyashiv said. “We’re not outsiders coming in. We evolve quickly, make good investments…and the results speak for themselves.”
We’re seeing the most rapid development in finance because the entire ecosystem is moving the fastest to adopt the technology, Mr. Elyashiv explained. While there are interesting verticals happening in many sectors, their effect will be limited until other sub-sectors buy in and let the efficiencies spread horizontally. Capital markets, payments and insurance are also making progress.
Mr. Elyashiv offered an interesting comparison when analyzing the potential impact of distributed ledger technology. In business it will be bigger than the Internet. He likens its effect to the Industrial Revolution because it is more transactional and will change the way business is conducted.
“I think we’ll know when we’re there when we don’t talk about blockchain, when we don’t talk about distributed ledger technology anymore,” Mr. Elyashiv said. “It’s just the way things are done underneath that you and I don’t know about.”
And it will get adopted fast because everyone wins, he added. Consumers and financial institutions enjoy faster transactions while audit and compliance practices become cheaper and more secure at the same time.
Cryptocurrencies will have their place, but when you consider derivatives, bonds, real estate and other components of the financial sphere that can be developed as digital securities and crypto is one small drop in a very large bucket, Mr. Elyashiv said.
“You’re looking at about $1.5 quadrillion around the world. What is Bitcoin at? $190 billion? Cryptocurrency? $380 billion? That’s three orders of magnitude smaller than these assets’ potential. In 10 to 15 years, zero to $1.5 quadrillion is unheard of growth.
“Any player in this ecosystem that is playing their cards right is growing like crazy.”
I remarked one of the best parts of my job is talking to people who look at DLT from completely different perspectives. SPiCE VC is backing companies who can drive industry-wide change on a macro level while startups galore tackle sector-specific solutions, or look at new ways to take the existing core technology and adapt it to benefit those verticals or even groups of people in need.
Blockchain raises interesting questions. Some companies are focused on adapting it but keeping certain core parts. Others believe the solution is in increasing interoperability between chains.
Perhaps a change in mindset is needed, Mr. Elyashiv suggested. Forty years in, the Internet Revolution is essentially powered by the same basic technology. That won’t be the case with blockchain.
“With blockchain it’s totally different because five years from now most of the blockchains we’re seeing today will not be significant anymore,” he said. “As financial verticals start using (new blockchains in development), we will see real distributed ledger technologies and implementations in specific industries and they will grow.
“It doesn’t matter if industry chooses the best technology but what it chooses is by definition the best technology. It doesn’t matter if you have a better technology if it’s not chosen.”
Companies overly invested in a specific blockchain technology risk their irrelevance should it prove inefficient, he added. Securitize, for example, issues tokens based on the premise the underlying technology layer will change. They are designed for functionality across multiple technologies, Mr. Elyashiv explained.
The United States remains the leader in digital securities, thanks to early clarity provided by the SEC in 2015, Mr. Eyalshiv said. That paved the way. In Asia, Singapore and Hong Kong and regulatory support, while the Financial Conduct Authority has done the same for the United Kingdom. Switzerland did a tremendous job of defining cryptocurrencies, utility and equity tokens, but stopped short of addressing digital securities.
“China has been pushing a digital yuan for a while and they’re doing it for a very good reason,” Mr. Elyashiv said. “They are trying to create… a digital Asian currency comprised of five securities, with most of the wight on the yuan and the yen. They’re trying to do this to counter the U.S. as a currency of trade.”
The European Union is progressing toward a digital euro, but achieving that reality is harder than most think, Mr. Elyashiv said. Involvement in payments and the role of community banks are among the issues to be solved.
Less impressive are some regions that have generated buzz, like Estonia, Mr. Elyashiv said.
“Some try and ride the blockchain and cryptocurrency train by stealing business and being fast.”
Surprisingly, Israel has fallen short in creating a fertile environment, Mr. Elyashiv. It failed in addressing the whole ecosystem and in defining tokens like Switzerland did.
“They’ll get there like everybody else but in this domain it’s very hard to see business growing in Israel,” Mr. Elyashiv said.
SPiCE is currently open for a second funding round, with the goal of securing $125 million, Mr. Elyashiv said said. New investors must commit a minimum of $250,000.
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