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Crypto startup looks for institutional cash a year after $10m ICO

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Cryptocurrencies have had a tough two-year period. Photo: Eclipse_images/Getty

Cryptocurrency startup Lendingblock has approached investors about raising money in recent months, according to several sources and a pitch deck reviewed by Yahoo Finance.

The efforts to raise fresh cash comes just under a year after the startup raised $10m-worth of cryptocurrency through an “initial coin offering”, a form of fundraising where startups sell newly created cryptocurrency in exchange for cash. Lendingblock sold LND coins to investors in April last year.

CEO and cofounder Steve Swain confirmed to Yahoo Finance UK that Lendingblock is “currently in discussions with a number of potential strategic equity investors from within the digital asset and fintech industry.”

The fundraising would help ensure Lendingblock has enough operating capital until it launches its platform, Swain said, as well as giving it a buffer to withstand current tough market conditions and meet regulatory capital requirements.

“Our investment process is ongoing,” Swain said in an email. He declined to comment on how much Lendingblock is looking to raise.

‘Great progress’

Lendingblock, which was founded in late 2017, aims to build a platform that lets institutional investors lend and borrow cryptocurrencies and other digital assets. This would replicate a key function that already exists in traditional financial markets.

Gibraltar-registered Lendingblock was founded by Swain, a veteran of Lehman Brothers, UBS, Credit Suisse and Deloitte, and Linda Wang, a Cambridge and UCL grad who did the Entrepreneur First programme and worked as a blockchain consultant at Deloitte. Other members of its management team have worked at institutions including Citi, UBS, and Citadel.

Yahoo Finance reviewed a Lendingblock investor deck that was created in October 2018 according to its metadata. It states that 25 institutions took part in testing its platform at the end of last year, including crypto lending business Genesis Capital.

The platform has yet to launch but Lendingblock’s presentation said it hopes to become cashflow positive by the second quarter of 2019. The projection assumes lending of crypto worth $300m over its platform in the first half of the year.

Swain said Lendingblock has “seen great progress and reached some key milestones amidst difficult market conditions over the past year.” He highlighted the development of Lendingblock’s platform, the company gaining approval-in-principal from Gibraltar’s financial regulator, and attracting “a list of more than one hundred institutional clients from across the globe.”

Bitcoin value has dropped drastically and recovery isn’t in sight yet. Photo: Caiaimage/Adam Gault/Getty

Crypto winter

The fundraising push comes amid what commentators have dubbed a “crypto winter”. After surging prices in 2017, driven in part by a boom in ICOs, crypto prices collapsed in 2018. The overall market cap of cryptocurrencies has fallen from around $800bn at the start of 2018 to around $120bn today.

Declining crypto prices have the potential to cause problems for ICO companies. Startups carrying out ICOs sell their tokens for either ethereum or bitcoin. Unless they changed those cryptocurrencies into pounds or dollars, they will have seen the value of their reserves dwindle rapidly.

Lendingblock declined to comment on how it has managed its ICO funds.

Swain said in an email that the fundraising push “has been driven not only by the desire to ensure we have sufficient operating capital to reach our launch date, but also to give ourselves additional contingency runway should our projected revenue be slower to build given the market conditions, and to ensure we meet the stringent regulatory capital requirement set by the Gibraltar regulator (for which ICO proceeds are not eligible under accounting standards).

“The team is in discussions with potential investors, and will update the market appropriately as progress is made. Furthermore, my management team continues to be effective in managing costs while staying acutely focused on delivering a great product for all clients, partners and supporters of our mission.”

Lendingblock’s investor deck projects fixed costs of about $4m in 2019.

Lendingblock’s website. Photo: Screenshot

A wave of institutional cash into crypto?

Crypto bulls believe prices will rebound once mainstream, institutional investors begin investing in the assets.

“We believe that client demand for access to digital assets as part of a diversified portfolio will drive significant capital flow towards digital assets via existing financial intermediaries,” Lendingblock states in its investor deck.

An executive at another crypto trading business, who didn’t want to go on record talking because they weren’t authorised to speak, said: “I wouldn’t be surprised to see folks raising money to have a longer runway until market interest picks up and the institutional folks enter the market more prolifically.”

There are signs that Lendingblock’s market predictions may come true. Fidelity and Nomura, two traditional financial giants, are both working on separate custody solutions to help institutions hold crypto assets. This week two US pension funds agreed to be anchor investors in a crypto venture capital fund. And yesterday JPMorgan announced it is launching its own digital currency, a sign major institutions are still interested in the space.

In the meantime, LND tokens, which will be used for interest payments on Lendingblock’s platform, have not been immune to the crypto slump. The total value of LND tokens in circulation has fallen from a high of about $16.5m last May to $2.6m today, according to CoinMarketCap.com. Swain said the tokens have tracked the price of ethereum, meaning LND has held its value relative to the cryptocurrency investors exchanged for them.

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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