Since early 2020, interest in blockchain, crypto, Decentralised Finance (DeFi), and non-fungible tokens (NFTs) has skyrocketed. 

The likes of Bitcoin and Ethereum recording all-time highs, rising market caps for the crypto market, and NFTs selling for hundreds of thousands of dollars have made blockchain and distributed ledger technology (DLT) important disruptors of traditional systems of transfer of value.

In fact, with a 121 percent increase in Series A deals over a five year period, blockchain technology has emerged as the second fastest-growing startup sub-sector globally, as per the Global Startup Ecosystem Report 2021 (GSER). Blockchain was ranked second just behind agritech and new food tech.

With several startups building exciting projects on blockchain, Woodstock Fund - a global multi-asset investment house started in 2019 by Indian founding partners Pranav Sharma and Himanshu Yadav - is backing ambitious early and growth stage DLT startups.

It has also invested in some Indian founder-led startups such as Covalent and Biconomy.

Investment criteria for blockchain startups

In a video interaction with Blockchain Story, Himanshu Yadav, Founding Partner, Woodstock Fund, says:

“We have a five-T matrix to evaluate startups. It comprises Team, Technology, Traction, Timing, and Total Addressable Market. Our investment thesis pans across the stack of blockchains. This means we invest across underlying settlement layers, service and infrastructure layers, privacy layers, and application layers.”

Woodstock’s first investment was in Elrond, which has built a scalable, fast, and secure blockchain platform for distributed apps, enterprise use cases and the new internet economy.

In 2019, in the bearish blockchain and crypto market, Himanshu and Pranav decided to back Elrond as they felt the team had a strong background and was executing its vision quickly.

“At this time, Ethereum’s layer 1 was struggling with scalability problems. Elrond had built the proof of concept for an adaptive state sharding model to address these issues, and also had a strong team background. So, we went into their code, and it checked all our boxes,” Himanshu adds.

Covalent, Biconomy, and Terra Virtua

Woodstock has also invested in Covalent, the blockchain data analytics startup founded by Ganesh Swami, as it was solving the challenge of blockchain data accessibility and usability.

Covalent allows developers to integrate the startup’s unified API in blockchain products and allow users to easily view historical transactions and account balances, among others.

Biconomy is another Indian founder-led startup that ticked all of Woodstock’s boxes. 

Started by Aniket Jindal, Ahmed Al-Balaghi, and Sachin Tomar, Biconomy provides APIs that enable simple and customised transaction journeys for developers to abstract away blockchain complexities through gas-efficient meta-transactions.

Now that NFTs have become the talk of the blockchain world, Woodstock is investing in and helping build success for the likes of Terra Virtua, Persistence, Ethernity, and other global startups.

Speaking about Terra Virtua, which is a collectibles platform across mobile, AR, and VR, Pranav says:

“Many projects have become ecosystems, and Terra Virtua is one example. We invested in them before NFTs became a trend as we saw the potential for building containers around collectibles and gamifying the experience around them. Now, Terra Virtua has gone even further by helping digital creators raise funds, creating brand showcases, integrating payment gateways, etc.”

Complexities in the blockchain space

Understanding DLT and its potential still remains complex for those investors unfamiliar with the space.

For instance, with Ethereum 2.0’s scaling protocol on the horizon, it has become increasingly difficult to predict the future of governance and community across blockchain projects.

“Innovation around scaling is fundamental. And while Ethereum 2.0 may address some of the issues, our thesis is that the world will be multi-chain. Ethereum can become the global settlement layer, but in the context of multi-chain interoperability, other chains such as Elrond will also become valuable,” Pranav says, adding:

“Bridges between certain blockchains or between blockchains and traditional enterprise markets will also create a large market.”

Bullish investor outlook

The duo believe that in the last 12 months, large investors have become more open to understand the DLT space.

According to them, investors now believe blockchain and crypto projects are not speculative asset classes, but have real potential to transfer value through blockchain transactions.

In the first half of 2021, blockchain and crypto sectors globally attracted almost double the amount of capital from venture capital, private equity, and mergers and acquisitions compared to the whole of 2020, according to Statista.

In the first six months of 2021, these sectors attracted $8.7 billion.

“Traditional funds are opening up and getting more clarity on this. Convincing them is not required any more, but some of them may be still waiting for more regulatory clarity, at least in India. Now, the UX for average users needs to catch up for more mainstream adoption to kick in,” says Himanshu.

While the nation waits for regulatory clarity on the classification and treatment of crypto, investor confidence and inflow of foreign investment in Indian firms like CoinDCX and CoinSwitch Kuber from the likes of B Capital Group, a16z and Coinbase Ventures could be an indicator of a bullish outlook towards the future of India's crypto market.

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