Cryptocurrency ‘hysteria’ could undermine fundraising

Cryptocurrency volatility could impact demand when fundraising through initial coin offerings, according to Rob van Kuijk, chief executive of Dutch fund manager Finles Capital Management.

Earlier this month, Finles announced plans to raise €100 million for a €500 million private equity fund by issuing its own cryptocurrency. A Singaporean vehicle will sell a finite number of digital tokens, or FundCoin, with the majority of proceeds being invested into Finles Lowestoft Equities Fund and the coin value backed by the subsequent private equity investments.

While demand for this new means of raising private equity funds remains to be seen, cryptocurrency is very much in the ascendancy. The value of bitcoin, one of the most well-known digital tenders, has risen from $1,939 as of 16 July to $4,425 at 16 August, according to CoinDesk.

Such volatility could deter potential investors in this nascent technology, though there are means of dampening these risks. The Singaporean company will attempt to stabilise the price of FundCoin by purchasing coins when the value drops and selling if it climbs too rapidly.

“The only thing you can’t protect is if [there is] hysteria and the coin goes up like bitcoin has gone up,” van Kuijk told Private Equity International. “That’s something you can’t stop because you don’t have enough money to [do] that. But I hope that people will [have] their senses together [and] that they see that this is a coin that is backed by investments and that should more or less be the relative value of the coin.”

Such uncertainty means van Kuijk has little idea of how the initial coin offering will be received. “It could be anything from a full subscription of €100 million within several hours or it will take maybe weeks before basically any subscription money comes in,” he said.

In February, Intellisys Capital launched its blockchain-administered fund, Mainstreet Investment. Unlike the Lowestoft fund, Mainstreet Investment will raise capital by distributing a blockchain-based token which represents direct ownership of the underlying asset, so investors get to share in profits made by the companies.

There are currently around 900 initial coin offerings in the market, according to van Kuijk. The technique is primarily utilised by start-ups looking to raise capital, and it is unusual for the cryptocurrencies to be backed by private equity investments.

“I think [FundCoin is] much more interesting for people than an ICO without any backing,” van Kuijk added. “But I hope that the market will think the same.”

Finles currently has €500 million under management. The firm has raised multiple funds through conventional means, including Finles Fountain Fund, a 2010-vintage global hedge fund portfolio, and Finles Lotus, a 2005-vintage multi-strategy Asia fund that invests in long-only and hedge funds.