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Forecast: Investment In Financial Services Using Blockchain Poised For Growth in 2021 – Crunchbase News

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Experts say 2021 is poised to see greater adoption and venture capital investment in blockchain technology. That prediction comes as more financial services apps are built using blockchain technology and cryptocurrency has become more widely accepted.

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Also working in the industry’s favor is the fact that major financial services companies including PayPal, Visa and JPMorgan have adopted cryptocurrency as a payment method in the past year, as well as more startups coming on the scene—armed with capital—to develop more user-friendly blockchain platforms.

Still, blockchain faces hurdles, including volatility in cryptocurrency pricing and confusion and misunderstanding from many consumers about the technology and related financial services, experts say.

Blockchain is digital information that is stored in a public database, and the benefit, particularly in the financial sector, is the ability to have a shared ledger recording detailed transactions without any identifying information, leading to improved security.

Investment in this space is growing, particularly in Europe, which has been quicker to adopt enterprise blockchain, which includes financial services, health care, energy and food and agriculture, said David Chreng-Messembourg, co-founder and partner at LeadBlock Partners in London. LeadBlock is a venture capital fund investing in early-stage business-to-business blockchain startups.

“We expect a funding need of more than 350 million euros [about $425.5 million USD] in Europe in the next 12 to 18 months after speaking with more than 200 B2B blockchain startups for our Enterprise Blockchain 2020 report,” Chreng-Messembourg told Crunchbase News.

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Within the financial services ecosystem but outside of cryptocurrency, he sees interesting startups and good progress being made in the areas of:

  • Tokenization, or the process of issuing a token on a blockchain which represents a real asset. This is a “highly active space with heavy VC investments,” said Chreng-Messembourg.
  • Fund administration, an area that is under pressure to manage costs, and one where startups are using blockchain to take up the challenge; and
  • Central Bank Digital Currencies (CBDC), a new form of central bank money issued on a blockchain, essentially central bank-backed digital currency.

“To date, no country has launched one, however, many central banks are running pilot programs,” Chreng-Messembourg said. “We see several advantages including lowering transaction costs, accelerating transfer times and promoting financial inclusion. A CBDC could become a game changer for most fintech blockchain solutions as it would facilitate onchain transactions.”

As adoption of blockchain gains momentum, so does venture capital investment in the technology. For example, Bloccelerate VC, a 2-year-old, Seattle-based early-stage VC firm, closed its first fund of $12 million in December to support blockchain technology startups in the trade finance, financial services and supply chain spaces, and has already invested in six companies.

Investors handed out $23.2 billion to global blockchain companies since 2016, and $3.3 billion to U.S. companies during that same period, according to Crunchbase data.

Though deal flow between 2020 and 2019 was relatively flat due to the global pandemic, Brooke Pollack, managing partner at Hutt Capital, expects it to increase in 2021. Hutt Capital is a blockchain venture capital fund of funds.

“We saw a pickup in deal activity in the fourth quarter, driven by a strong year for companies across the blockchain and crypto ecosystem,” Pollack said. “Strong performance drove increased attention from investors, and we see this continuing in 2021.”

Pollack also expects to see high-growth companies that raised seed and Series A rounds to raise larger rounds this year as they scale and attract more attention from venture investors.

Startups are coming out with tools and products under decentralized finance, or DeFi, which is financial software built on the blockchain that can be pieced together. Some examples are Bitpay, which provides bitcoin payment solutions for businesses and organizations, and BlockFi, a secured non-bank lender that offers crypto-asset-backed loans to crypto-asset owners. Bitpay has raised $72.5 million, while BlockFi has raised nearly $160 million, according to Crunchbase data.

As DeFi surpasses $19 billion in total value locked (total supply being used), the amount of capital being invested into startups building in the blockchain space is impossible to ignore, said Alon Goren, founding partner at Draper Goren Holm, via email. The firm is a fintech venture studio focused on incubating and accelerating early-stage blockchain startups.

Apps are needed because current DeFi interfaces are clunky, hard to use and not as friendly yet for the average consumer, said Goren.

“We’re really excited about the wave of entrepreneurs eager to make decentralized finance available for the masses,” he said. “2021 will introduce the birth of mass-adoption inspired consumer-facing apps that will allow more people to tap into high yield generating decentralized financial protocols. It must be simple, clean, and to the point. All these additional features and navigational barriers are stifling adoption.”

Cryptocurrency adoption

With regard to cryptocurrency pricing volatility, after reaching an all-time high on Jan. 8 of approximately $41,500, Bitcoin crashed losing about 24 percent of its value as of Jan. 11. Ethereum, which reached a market cap of $120 billion in early January, also saw its price go down.

Further validating the industry is major financial services companies adopting them, such as PayPal, said Daniel Polotsky, crypto chief and CEO of CoinFlip, which touts itself as the largest crypto ATM company in the world.

“I’m biased, but I have been in this space since 2013, and the fundamentals of bitcoin and cryptocurrency are awesome, and for financial services companies to see that—with PayPal and Square buying up some—everyone will follow on,” Polotsky said in an interview. “Our hope is that eventually it will be used more for a payment method.”

There is still a lot of work ahead though, said Graham McConnell, co-founder of blockchain-based fintech startup Nth Round.

While big banks are using cryptocurrency for international transfers, it is still not a compelling way of payment that most people typically understand or are able to manage, he said.

McConnell predicts 2021 could mean a wider adoption of blockchain and cryptocurrency as payment methods.

“There is a definite possibility that this could be the year,” McConnell said. “Almost daily, we are seeing banks taking it seriously, so this might be the year where it reaches mainstream.”

However, he cautions that price volatility in the marketplace is still an issue. He pointed to 2017 and 2018 as years when people jumped on crypto, urging the price up, only for the market to crash.

“What worries me is because there is speculation and the result is volatility, people could get hurt by it,” he added. “If it looks like a bubble, then people are getting in for the wrong reasons.”

One of the entities helping with the education component is Real Vision, a broadcast media company, which launched a crypto site last November to provide content for traders, finance professionals, policymakers and educators who want to learn more about crypto markets.

Co-founder Raoul Pal told Crunchbase News that as long as cryptocurrency was still “the wild west right now, there are going to be a lot of failures.” He agrees that 2021 will be the year for institutional adoption of cryptocurrency, which was one of the drivers of the new crypto site.

“People don’t quite know what is going on,” Pal said. “They want trusted ownership and transfer of assets. There are big and meaningful companies in this space, like BlockFi, which is just doing interesting stuff.”

Meanwhile, regulatory clarity regarding cryptocurrency has improved in the past five years, said Michael Gronager, CEO of Chainalysis. The company provides blockchain data and analysis to government agencies, exchanges and financial institutions.

Regulations enable companies to do what they do, protect citizens, as well as drive change in sentiment that “crypto is dark and scary,” said Gronager in an interview.

“We anticipate more deregulation of financial services,” he said. “In the past, there was a need for regulations around what banks needed to report, but with a change in transparent reporting, it will enable financial deregulation that will enable more commerce to happen, which is the only way to compete against other countries, like China.”

Illustration: Dom Guzman

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North American Venture Investment Rose In 2020, Culminating With Big Exits And A Strong Q4 – Crunchbase News

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History will remember 2020 as a very bad year by many measures. However, venture funding will not be one of them.

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Funding for startups and growth-stage private companies in North America held up at historically high levels last year. Even amid a pandemic, widespread unemployment, and escalating small-business closures, investment was up year over year across all stages from early and beyond.

Table of contents

North America overall

Overall, venture investors put just over $150 billion to work across all stages in 2020, up around 7 percent from 2019 levels, per Crunchbase data. For perspective, here are the annual funding totals, color-coded by stage, for the past 10 years:

The fourth quarter ended on a robust note as well. Investors poured $38.7 billion into North American seed- through growth-stage deals in Q4, per Crunchbase data. Totals for Q4 of 2020 were up 16 percent year over year and down 12 percent quarter over quarter.

The narrative playing out in the private company sphere largely dovetailed the public market environment. COVID-19, political mayhem and financial distress on Main Street failed to resonate on Wall Street, with major indexes, and tech stocks in particular, reaching record valuations.

The upbeat climate on public exchanges helped spur a raft of venture-backed unicorns to carry out initial public offerings and direct listings, and follow the increasingly popular special purpose acquisition company path to market debuts. Those hitting public markets in Q4 were among the largest debuts of the year, led by Airbnb and DoorDash.

Below, we look at the tallies by stage, highlight top exits, and look at the most active investors for both the year and the just-ended quarter.

Late-stage funding

Late stage accounts for the largest share of venture dollars across any stage, so we’ll start there.

For all of 2020, venture investors put $94.5 billion into late-stage and technology growth1 deals. That’s a sizable jump from 2019, when $85.7 billion went into such deals.

While funding rose, round counts declined a bit. Crunchbase counted 1,167 late-stage and tech-growth rounds in 2020, down 10 percent from 2019, as average round sizes grew larger.  In the chart below, we lay out funding totals and round counts for the past five quarters.

The fourth quarter was the second-biggest of the year for investment totals, with $23.3 billion going to late-stage and technology-growth deals. That’s down 25 percent from Q3, which was by far the biggest quarter of 2020, but up about 18 percent from the year-ago quarter.

For both Q4 and 2020 as a whole, supergiant rounds of $100 million or more played a key role in pushing investment totals up. For the full year, there were 193 so-called supergiant rounds of $100 million and up at the late stage, per Crunchbase data, up from 156 in 2019.

The brisk pace of supergiant late-stage rounds continued in Q4, with five late-stage rounds of $340 million and up:

  • Nuro, a developer of autonomous delivery vehicles, raised a $500 million Series C;
  • Relativity Space, which focuses on 3D printed rockets, raised a $500 million Series D;
  • TuSimple, a self-driving truck company, raised a $350 million Series E; and
  • Scopely, a mobile gaming company raised a $340 million Series E.

For the full year, meanwhile, there were 26 late stage rounds of $300 million and up, with the largest—a $600 million Series E—going to payments processor Stripe.

Early-stage funding

Early-stage investment also rose in 2020, with Q4 ending the year on a high note.

For the full year, investors put $49.1 billion into early-stage rounds (Series A and B), up about 3 percent from the 2019 total. Round counts totaled just under 3,000, down around 11 percent from 2019.

The fourth quarter provided a strong close, with $13.6 billion in early-stage investment, the highest total of the past five quarters. Round counts, meanwhile, were up slightly quarter over quarter, but still down from year-ago levels. We lay the numbers out in more detail in the chart below.

In the fourth quarter in particular, we saw a proliferation of super-sized Series A and B rounds. These include:

  • Resilience, a startup looking to speed up the biopharmaceutical manufacturing process, raised $750 million in a November Series B round;
  • Uber Freight, a logistics spinout of Uber, raised $500 million in an October Series A round;
  • Heyday, a digital marketplace for consumer products brands, raised a $175 million Series A round in November; and
  • Function of Beauty, a provider of customizable beauty products, raised $150 million in a December Series B round.

Seed-stage funding

Seed-stage investment was down in 2020 compared to year-ago levels, and hit a low point in the fourth quarter, according to reported data from Crunchbase.

Overall, seed-stage companies raised $7.2 billion in all of 2020, down 10 percent from 2019. Reported round counts totaled just over 6,400, down 22 percent from 2019 levels.

For Q4, meanwhile, seed investment totaled $1.7 billion, tied for the lowest total in two years, while round counts saw steep year-over-year declines. Investment totals and round counts for the past five quarters are shown below.

Part of the Q4 and 2020 seed-stage declines may be attributed to reporting delays. Much of the seed funding data in the Crunchbase dataset is self-reported by companies. Because a sizable percentage of rounds get entered weeks or months after they close, reported funding totals historically rise over time.

That said, it does appear that seed and angel funding was down some, even accounting for the lag. It’s a trend likely attributable in part to the pandemic. After all, it was not an opportune year to launch a startup in a number of spaces, including travel, hospitality and live entertainment. Investors and founders in a range of sectors may also have taken a wait-and-see approach, preferring to launch and scale in a post-pandemic environment.

The absence of face-to-face networking opportunities probably also played a role. Investment for seed companies is more personality-driven than at other stages, since startups typically have no finished product or market traction.

Exits

Overall, 2020 was an exceptionally good year for venture-backed exits, and Q4 was a standout quarter on this front. Below we look at returns from public market debuts, followed by M&A.

IPOs, Direct Listings And SPACs

The tech sector was on fire in the public markets last year, and startups took notice. Many companies that had been talked-about candidates for public listing chose 2020 as the year to make it happen.

Markets were receptive. The year’s biggest tech market debuts included Airbnb, Palantir, DoorDash, and Snowflake, which now collectively maintain a market capitalization of over $300 billion.

Many of the year’s largest market debuts took place in Q4, as laid out in the following list.

In addition to the size and volume of public offerings, 2020 stands out for the variety of methods companies employed to make their market debuts.

While most of the largest offerings were traditional IPOs, we also saw heightened use of two other paths to the markets: direct listings and mergers with a special purpose acquisition company, or SPAC.

For 2020, the largest direct listing was Palantir, which went public in late September at an initial valuation of $22 billion and has since seen its market cap balloon to $49 billion. On the SPAC side, homebuying and selling platform Opendoor closed out the year with a December debut at an $18 billion valuation following completion of its merger with a blank-check acquirer.

M&A

Venture-backed companies also got acquired at a pretty good clip in 2020, with a number of multibillion-dollar deals, including several in the fourth quarter.

Standout M&A deals for 2020 include Illumina’s $8 billion purchase of cancer screening company Grail in September and Intuit’s $7.1 billion purchase of fintech unicorn Credit Karma, which was announced in February and completed in December.

As for Q4, we saw a dozen acquisitions2 valued at $1 billion or more, with the largest of the disclosed deals listed below.

Active Investors

As mature startups exited, younger companies lined up for fresh venture funding, and an array of prominent VC firms stepped up with capital.

Below we look at the most active venture and alternative investors in Q4 of 2020, looking at both new investments and follow-on investments in existing portfolio companies.

We don’t see any big surprises here, although it’s notable that the list does favor companies active in late-stage investment and multistage investment rather than pure early-stage investors.

The Big Picture

So, having crunched the numbers, with what sweeping description may we bid adieu to 2020?

Overall, it was a bullish year for venture funding and exits amidst a grim period in many other respects.

For 2021, startups are certainly hoping the receptive public markets, readily available capital, and strong valuations remain a thing. However, it’d also be nice to see a return of some of the much-missed aspects of startup life, including a lot fewer video meetings and a lot more face-to-face human contact.

Methodology

The data contained in this report comes directly from Crunchbase, and is based on reported data for North America namely Canada and the United States.

The most recent quarter will increase over time relative to previous quarters. For funding counts, we notice a strong data lag, especially at the seed and early stages, by  as much as 26 percent to 41 percent a year out.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

  • Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding, and convertible notes at $3 million (USD or as-converted USD equivalent) or less.
  • Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture, and other rounds above $3 million, and those less than or equal to $15 million.
  • Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series,  corporate venture, and other rounds above $15 million.
  • Technology growth is a private equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman

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JPMorgan's profits jump as economy, investment bank recovers – BNN

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CHARLOTTE, N.C. — JPMorgan Chase & Co., the nation’s largest bank by assets, said its fourth quarter profits jumped by 42 per cent from a year earlier, as the firm’s investment banking division had a stellar quarter and its balance sheet improved despite the pandemic.

The New York-based bank said it earned a profit of US$12.14 billion, or US$3.79 per share, up from a profit of US$8.52 billion, or US$2.57 per share, in the same period a year ago. Excluding one-time items, the bank earned US$3.07 a share, which is well above the US$2.62 per share forecast analysts had for the bank.

The one-time item was JPMorgan “releasing” some of the funds it had set aside last year to cover potential loan losses caused by the coronavirus pandemic and subsequent recession. Banks had set aside tens of billions of dollars to cover potentially bad loans, and JPMorgan had been particularly aggressive in setting aside funds early in the pandemic.

Releasing those funds goes straight to a bank’s bottom line when it reports its results, but it’s not money that the bank generated from loans, customers or borrowers. It’s just funds that were effectively put into escrow and are no longer in escrow.

The US$1.9 billion release is only a fraction of what JPMorgan set aside last year, and with the pandemic raging across the globe and particularly here in the U.S., it’s uncertain how much more the bank will release in the upcoming quarter.

“While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over US$30 billion continue to reflect significant near-term economic uncertainty,” said JPMorgan CEO Jamie Dimon in a statement.

The driver of JPMorgan’s profits this quarter was the investment banking business. The corporate and investment bank posted a profit of US$5.35 billion compared with US$2.94 billion in the same period a year earlier. JPMorgan said it saw higher investment banking fees — money banks collect to advise companies on going public or buying other companies — as well as higher fees from its trading desks.

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Shares in China’s Xiaomi tumble after US investment ban – Financial Times

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Shares in China’s Xiaomi sank after the US government added the smartphone group to an investment blacklist, in a move that is likely to thin its ranks of American shareholders.

The Beijing-based company’s stock dropped 10.3 per cent in Hong Kong trading on Friday, hours after the Pentagon added it to a list of companies with suspected ties to the Chinese military. That, in conjunction with a separate executive order, will block US investors from buying its shares 60 days from now and will require Americans to eventually sell their holdings.

The move marks a significant blow for Xiaomi, which had been a big beneficiary of Washington’s campaign of sanctions against Chinese competitor Huawei. That had helped Xiaomi’s sales to surpass US group Apple’s, making it the world’s number three phonemaker by units sold in the third quarter. 

Its shares soared 227 per cent last year, pumping up its market value at the end of 2020 to $108bn. Large Xiaomi shareholders include US fund managers BlackRock, Vanguard, Fidelity and State Street, according to Bloomberg data. Friday’s share price fall cut Xiaomi’s market capitalisation by more than $10bn.

State Street declined to comment on its Xiaomi holdings. Vanguard, Fidelity and BlackRock did not respond to requests for comment.

“Xiaomi’s political risks have dramatically increased,” said Wu Yiwen at Strategy Analytics, adding that the blacklisting could threaten the company’s “aggressive expansion plan and affect partners’ confidence”.

An executive order from US President Donald Trump in November targeted US investments in Chinese businesses alleged to have ties to the country’s military. The Pentagon’s list included China’s three big state-owned telecom carriers, prompting the New York Stock Exchange to de-list the companies.

S&P Dow Jones Indices, MSCI and FTSE Russell all removed China Telecom, China Mobile and China Unicom from their global equity indices. But State Street decided that its $13.4bn fund that tracks Hong Kong’s Hang Seng index, which contains two of the telecom groups, could continue trading in securities of the sanctioned companies.

Wendy Wysong, a partner at the Hong Kong office of law firm Steptoe & Johnson, said the Trump executive order did not apply to foreign subsidiaries of US companies. However, she added that “a US company cannot evade the prohibitions by directing their Asian subsidiary to deal in the securities”.

The US defence department said the move against Xiaomi and eight other newly listed Chinese companies aimed to counter the country’s “military-civil fusion development strategy” but offered no evidence of the smartphone maker’s involvement in this. 

Xiaomi said in a statement to the Hong Kong bourse on Friday that it was not controlled by, or affiliated to, the Chinese military and that it was “reviewing the potential consequences of this to develop a fuller understanding of its impact on the [company]”.

China’s foreign ministry said on Friday the US was abusing its state power, adding that it would “take necessary measures to protect the legitimate interests of Chinese companies”.

Analysts say the case against Xiaomi is thin and could be reversed under the incoming Biden administration.

“Although it won’t be Biden’s priority to undo each and every one of Trump’s outgoing moves, the Xiaomi investment ban’s deadlines could be postponed — most likely for a few weeks at first, then possibly more durably,” said Andrew Bishop, head of research at policy risk consultancy Signum Global.

CK Lu, an analyst at research firm Gartner, said the investment ban would not affect Xiaomi’s products or supply chain but could hit its ability to raise capital if US shareholders could not buy its shares.

Nian Liu contributed reporting from Beijing.

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