12 factors VCs should focus on when vetting crypto and blockchain companies

cointelegraph.com:

Venture capitalists may be wary of the crypto and blockchain industry at the moment, and it’s not without reason. However, the highly publicized bad actions of a few shouldn’t keep VCs from spotting the real potential that well-run businesses in the sector can offer.

As with investments in any industry, conducting thorough research and asking smart questions can help VCs ensure they’re backing reputable companies poised to make a positive (and profitable) impact in the market. Here, 12 members of Cointelegraph Innovation Circle share tips for a VC who’s considering investing in a crypto and blockchain company.

Blockchain won’t change the world; what we do with it will. We need to focus on adoption and relevance beyond the crypto and blockchain space. Therefore, my tip is to look for any kind of traction outside of the blockchain space. – German Ramirez, THE RELEVANCE HOUSE AG

VCs should look for the same fundamentals they’d watch for elsewhere: creditworthiness, risk modeling, vetting standards and audits, and government oversight. Regulation and market dynamics are likely to change the status quo, and more players will enter the space with new ideas. Some have spent years anticipating this (as we have), partnering with regulators to create a workable path forward. – Nathan McCauley, Anchorage Digital

Looking at the infamous FTX balance sheet, it surprised me that VCs seemed to “overlook” that the assets were not risk-weighted — a lesson we should have learned from the 2008 global financial crisis. A bare minimum for decentralized finance projects, specifically, would be verifying audit reports, internal control processes, risk management (counterparty risk, leverage, liquidity and so on) and stress-test results. – Amber