In a bold defiance of the ongoing cryptocurrency bear market, a trio of seasoned crypto entrepreneurs – Tim Draper, Alon Goren, and David Bleznak – have formed Draper Goren Blockchain, a new incubator separate from the existing Goren Holm Group LLC venture capital firm and incubator. Located in Westlake Village, this venture studio, which is building multiple startups at once, intends to incubate blockchain and crypto founders and accelerate their products to market around the world.
The blockchain studio is structured as a general partnership and an operating entity, a step beyond the previous Draper Goren Holm $25 million limited-partner venture fund, which still oversees an active portfolio. Under this new architecture, Goren and Bleznak will be the main players, sticking with companies from their early garage days to 10-year time horizons.
“We participate in the trenches in a way others don’t,” founding partner Goren said. “In the blockchain space there is a general distrust amongst the community for traditional venture capitalists. We kind of have an outsized extra advantage by being the kind of misfits who hang in the trenches with these engineers and developers.”
Initial investments range from $25,000 to $100,000, and the studio plans to onboard at least 30 companies in the next two years. According to Goren, the incubator believes “earlier the better” for prospective pre-seed buy-ins, meaning pitches may not even need a minimum viable product to receive funding.
Goren brought Bleznak to the venture-partner level after investing in his startup Totle Inc. through Draper Goren Holm. Bleznak’s decentralized platform for trading crypto sold for an undisclosed amount last year, becoming the first from the previous studio’s 30 companies to achieve a market exit. After a year overseeing institutional products at Coinbase Global Inc., Bleznak is now a managing partner for Draper Goren Blockchain.
Goren, known for his pioneering efforts in crowdfunding, transitioned into the blockchain arena with notable success in the industry’s early roots. His journey began with InvestedIn, a crowdfunding platform that later morphed into a tool for marketing hedge funds and venture funds over the internet. Goren’s transition to blockchain began with Draper in cofounding Draper Goren Holm in 2018.
Draper, a venture capital stalwart, will remain as a limited partner of Draper Goren Blockchain, serving as an advisor while the two other partners work hand in hand with portfolio companies. Draper has a long-standing reputation for backing successful tech startups, with a keen eye for blockchain-based ventures. His venture capital entities, including Draper Associates LP, DFJ Growth Management LLC and the Draper Venture Network LLC, often veered towards decentralized technologies.
While the founding trio will use the first fund’s model as the blueprint, the new studio brings in a new brand: the former venture’s founding partner Josef Holm is no longer in the fold. Holm, a serial entrepreneur and investor, now works as the chief executive of a Dubai-based startup.
Pushed offshore
With Los Angeles having one of the largest pools of tech workers on the West Coast, one would think Draper Goren Blockchain wouldn’t need to look outside of the city for entrepreneurs to invest in. However, in discussing where its money may flow, Goren noted a number of companies are putting down roots outside of the United States to evade regulations.
“Every day I talk to Americans who are not in America because they don’t want to launch their company here,” Goren said. “This industry is the first time I have ever (heard) that.”
When numerous bad actors were exposed last year for fraudulent crypto operations, lawmakers and regulators alike moved swiftly to oversee an industry once championed for defying government oversight.
The Securities and Exchange Commission has progressively asserted its jurisdiction over crypto companies, arguing that most cryptocurrencies should be classified as securities and thus subject to investor protection rules. The commission sued Coinbase Global and Binance in June for failing to register crypto tokens.
In July, a flurry of bills proposing to extend the Commodity Futures Trading Commission’s oversight in the crypto sector while clarifying the SEC’s regulatory power passed through the House Financial Services Committee. The four bills targeting the industry are poised for a House floor vote this session.
Investors are monitoring their progress of the legislation and are looking to mount steep opposition if anything makes it to the Senate. All the while, Goren and his partners continue to invest in entrepreneurs over virtual pitch calls, no matter where the company may be based.
“We want to be able to attract the best people in the world, and not being in the same room doesn’t really slow anything down,” Goren said.
While the venture studio hasn’t announced any specific investments yet, the fund is keenly interested in startups focusing on Layer 2 solutions to existing blockchain networks. These are innovations designed to alleviate current congestion in popular blockchain networks, increasing their transaction load and decreasing the fees tagged to purchases.
Swimming upstream
Draper Goren Blockchain emerges at a time when most major crypto coverage centers on the trial of FTX founder Sam Bankman-Fried, who is accused of orchestrating one of the biggest frauds in U.S. history.
In the wake of his exchange’s spectacular collapse last November, the value of top crypto currencies such as Bitcoin and Ethereum plummeted.
While Bitcoin has regained almost three-quarters of its value, a crisis in confidence spooked most venture capital firms from activity in the sector.
According to research by the digital asset manager Galaxy Digital Holdings Ltd., the crypto and blockchain sectors recorded a combined investment of $2.32 billion in the second quarter, a low not seen since the fourth quarter of 2020.
For comparison, when the overall crypto market peaked two years ago, venture capital infused $13 billion in the sector in the first quarter of last year.
Amid the mass market-clearing event, Draper remained a public advocate for cryptocurrencies and their potential to disrupt traditional, centralized finance systems. His bullish stance on Bitcoin, especially his $250,000 valuation prediction for the coin, made headlines this year amid mainstream skepticism for crypto’s hype culture. In the first week of October the coin was trading for around $27,000.
Despite perception and market headwinds, Draper was joined by investors in the previous Goren Holm venture to own a piece of the new incubator. While the overall market condensed, the startups incubated under Draper and Goren live to see the next iterations of decentralized innovation.
Recently, the portfolio company Lunarcrush Inc., a platform guiding crypto investment decisions based on social media trends, saw a sizeable boost in valuation after a $5 million Series A round was announced in July.
Ownera, a Draper Goren Holm portfolio company Goren also co-founded, announced backing from U.S. Bancorp and JPMorgan Chase & Co. in March to grow its platform connecting digital assets to wealth managers.
Under the general partnership structure, Draper Goren Blockchain guarantees ownership for its investors banking on the previous model’s promise in churning out successful ventures.
“This is an extension of what we’ve done in the past, but trying to home in on all of the things we did well and do better all around,” Goren said.