Forget cash. SF’s Blockchain Capital will be first VC to fundraise using digital tokens

The future is here. And no, you don’t need your wallet.

For one San Francisco-based venture capital firm, that means the end of cash and everything associated with it — even traditional securities and IPOs. The group is trying to turn the investing industry on its head by becoming the first VC firm to raise money using blockchain — that mysterious technology that brought us bitcoin and other digital currencies.

Blockchain Capital, which has spent the past four years investing in bitcoin-related technology, now is putting its money where its mouth is — literally. The firm on Thursday announced that about $10 million of its new $50 million fund will be raised using digital tokens.

It’s a move that’s never been tried by a venture capital firm before, says Brock Pierce, managing partner at Blockchain Capital. But he swears others will follow his lead. Who needs paper, after all?

“This is the future,” Pierce,  a former child actor you may have seen in “The Mighty Ducks” and other films, said in an interview with SiliconBeat. “Eventually all venture capital firms will be structured this way.”

The fundraising will happen via something called an “initial coin offering,” or an ICO. Think an IPO, but instead of selling traditional shares of a company (in this case, a VC firm) on the New York Stock Exchange or Nasdaq, the company sells digital tokens. Each token represents a stake in the company and comes with voting rights and possible board seats, but they are purchased through the same type of digital exchanges that sell bitcoins.

Perhaps the biggest distinction — anyone can buy them right away. With a traditional IPO, the company first sells its shares to institutional investors, and then the shares trickle down to the public market for anyone to buy. With an ICO, there’s no institutional investor middlemen.

“We’re opening it up to the masses,” Pierce said. “We’re democratizing venture capital.”

It’s an idea that’s becoming more popular. Last year about 64 ICOs raised $270 million, Pierce said. This year, he expects to see more than four times that many deals.

Of course, there are still snags. For one thing, these offerings operate in a legal gray area not explicitly regulated by the Securities and Exchange Commission (though Pierce says his offering complies with SEC rules). And that means many investors are likely to balk at the additional risk and stay away — at least for now.

Photo: A pile of bitcoin slugs sit in a box ready to be minted by software engineer Mike Caldwell in his shop on April 26, 2013 in Sandy, Utah. (George Frey/Getty Images)



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