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Top VC : How Do We Estimate the Valuation of Blockchain Projects?

A group of private equity funds have flocked into the cryptocurrency market since the second half of 2016 as bitcoin price surges. Investing in blockchain startups is very different from investing in traditional startups considering that blockchain technology remains in the early stages, and the transition period for blockchain projects from the primary market to the secondary market is quite short.


Against this background, how do institutional investors estimate the value of a blockchain project?  Richard Wang, a partner at DFJ Dragon Fund gives his answer.

“Before we invested in some blockchain projects last year,we would estimate the project’s valuation based on the percentage of its tokens in circulation, and the amount of money it wanted to raise. But the valuation must be supported by a certain logic and ideas. We seldom invest in new projects, but will pour money into ‘old’ projects. ‘old’ projects usually refer to those that have a team to run and have an application scenario.We will estimate its valuation based on the assumption that it will continue to expand the community. ” Wang said.

Founded in 2006, DFJ Dragon Fund is a leading venture capital firm in China, and has invested in multiple blcockchain projects since 2014.

In Wang’s opinion, there is a big difference between blockchain investment and traditional equity investment, that is, equity investment is a long-term investment, while blockchain startups can raise money through the initial coin offering(ICO) and might enable investors to ‘exit’ only a month later.

However, with the advent of a cryptocurrency bear market, this situation has changed. As a large quantity of coins fell on debut, the investment firms that originally engaged in the equity investment in the primary market have to shift their attention to the secondary market of cryptocurrency. Thus managing the market value and paying close attention to the secondary market of cryptocurrency become the priority for those investors.

“We must pay attention to the secondary market in a bear market, because we need to know when is the best time to exit.  We need to keep an eye on the performance of a cryptocurrency in the secondary market, the number of addresses that the cryptocurrency’s wallet has, and whether it has big players to manipulate the market.” Wang said.

Although it is not popular in the venture capital circle to conduct early investment through tokens, and this model also faces some regulatory risks, Wang believes the token investment model still has a relatively promising future and deserves the public’s attention.

“We need to think about what products current existing in the market will have an impact in ten years, and will be used a decade later.”Wang concluded.


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