Why this VC fintech firm didn’t invest in Coinbase and Ripple
Nyca Partners, the third most active venture capital firm in fintech globally, is invested in enterprise blockchain efforts, such as the digital remittance service Abra.
But in 2014, Nyca passed on some now valuable blockchain firms, including Coinbase, Ripple and Blockchain.io.
There’s no wistfulness about not buying into those opportunities, said Hans Morris, the former president of Visa and a longtime Citigroup banker who heads Nyca.
“One of the components of our thesis in 2014 was that we didn’t want to invest in anything that’s dependent on the price of cryptocurrencies,” Morris said. “Fundamentally we viewed that as a speculative or ideological investment, not a rational investment.”
At a recent fintech conference in New York, Morris said he still believes investor interest in bitcoin and blockchain is driven by speculation.
“However, we also felt that this is quite a powerful technology idea — in the same way that the cloud is a powerful technology idea, or that agile sprints have transformed development processes,” Morris said.
Blockchain could possibly translate well for use in an industry where many transactions already run on ledgers. But for financial services, Morris said, implementing blockchain would require ripping out old technology and getting institutions to agree to a synchronized database.
“That’s an idea that people have been talking about for decades, that if there was a single golden source of truth, you can eliminate reconciliations,” Morris said. “That would have profound impact. It’s just that it’s really difficult and expensive to get that status.”
While synchronization is a useful tool for financial institutions, the technology will need to keep pace with the transaction loads that banks process, he added.
“If you think about any activity in financial services where synchronization of data is of fundamental advantage, where low latency is less essential, and where you can start with a small number of participants who benefit from the application, but can scale to include all participants, then distributed ledgers are potentially an ideal solution,” Morris said.
Moody’s Analytics predicts that blockchain could streamline the process of securities trading and eliminate redundancies in costs as well as increase speed.
“We see post-trade processes as most clearly benefiting from the potential for reduced manual reconciliation across intermediaries’ and counterparties’ ledgers,” Ana Arsov, managing director at Moody’s, said in an email. “Blockchain can also promote transaction transparency, enhance data security and reduce the risk of a single point of failure.”
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