Traditional venture capital (VC) firms were not designed to invest in assets other than public and private companies. After the huge returns from the cryptocurrency sector during 2017, these firms are now looking to partake in cryptocurrency investments.

Recently, top tech investors were, reportedly, meeting internally to discuss documents to assess legal and financial consequences of their proposed crypto investments.

Two options are available to the VCs: create a fund or invest in a fund. Creating a new fund provides more freedom: they can raise capital exclusively for such investment. Investments could be in crypto startups, ICOs, existing digital currencies or other companies related to the sector.

By establishing a separate crypto fund, the VCs circumvent the biggest legal roadblock to virtual investments. By current laws, they cannot hold more than 20 percent of their funds in liquid securities, and certain cryptocurrencies and ICOs could very well be classified as such.

The second option is to invest in other funds, which are explicitly focused on digital currencies. Union Square Ventures went this way. Instead of launching their own capital pool, they invested their money in six token funds.

Bain Capital and Sequoia Capital are following the same route. By engaging with other businesses, they part with a fraction of their money and do not have to invest as much time and energy managing a separate fund.

Cryptocurrencies are highly volatile, which means aggressive trends in either direction could make or break a VC in the crypto sector. Conservative investors who are interested in cryptocurrencies are modifying agreements with limited partners and lawyers to ensure that they can participate.

Doing this helps VC firms in staying true to their original purpose while still getting a chance to expose a limited percentage of their capital in digital coins. Greylock Partners is following the same strategy.

As the crypto markets mature and volatility is reduced, more VCs will likely be entering the space. Especially if regulations become more accommodating.

Why Venture Capitalists Don’t Want to Miss on Cryptos? was originally found on [blokt] - Blockchain, Bitcoin & Cryptocurrency News.

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