Fidelity Vets launches Castle Island Ventures, a $ 30 million blockchain fund

C & # 39; is a new venture capital fund in the city, focusing on the most heavily taxed sector at the moment: blockchain systems and cryptocurrencies. It's a small fund, but what's interesting about Castle Island Ventures is the pedigree of the founders of the Boston firm and the careful approach they are taking.

In an exclusive interview, co-founder and partner Matt Walsh states that Castle Island Ventures has raised $ 30 million for its first venture capital fund. Walsh and Nic Carter, the other partner of Castle Island, have quietly formed the company at the start of this year, after leaving their jobs at Fidelity Investments. Today they are officially coming out of the shadows with their new venture, which is part of an emerging group of crypto / blockchain funds located all over the world (see the table near the bottom of the story).

Castle Island will soon be back in its early startup phase, developing products and services to stimulate the adoption of blockchain technologies: distributed online accounting systems that support digital currencies like Bitcoin. There are many obstacles to overcome, but if the supporters are right, one day the blockchain could transform finance, IT security, management of the company supply chain and other aspects of industry and society.

Matt Walsh

Walsh spent the last four years at Fidelity, where he was a vice president and one of the leaders of the asset management giant who was exploring the nascent world of crypto / blockchain. This work included the assessment and development of potential blockchain products and the direction of blockchain investments by Devonshire Investors, the private investment arm of Fidelity, says Walsh. Carter, meanwhile, was a Fidelity investment research analyst focused on cryptocurrencies and blockchains, says Walsh. Carter also created Coin Metrics, an open source software project that provides data analysis used by cryptic investors. After the couple quit Fidelity work, they headed to the Charles River, swapping their offices near the Boston financial district for space at Kendall Square in Cambridge, MA.

Nic Carter

Castle Island is notable, in part, for what it will not invest in: digital "token" sales. Young blockchain initiatives are gathering more and more money through online "initial money offerings" (ICO), through which they sell digital assets that can be used to pay for services, such as cloud-based data storage, powered by enterprise software . But such symbolic sales are less regulated than traditional fund-raising mechanisms; many of these cryptographic crowdfunding campaigns are proving to be scams, and regulators have considered some of these offers of illegal titles.

While some equity investment companies are also putting money into symbolic bids, Walsh argues that Castle Island is clearly driving. "We are absolutely not a crypto hedge fund," he adds.

Castle Island's agreements with its investors give it the ability to purchase cryptographic assets, such as Bitcoin and Ethereum, says Walsh. But it's not a big focus for the company, he adds, and those purchases will be made on a "buy and hold" basis.

Instead, Castle Island will mainly invest equity in companies that build infrastructure that could allow industry to grow-think user interfaces, digital goods storage management software, and other products that serve as "picks and shovels" for the industry, says Walsh.

"It will not always be the kind of sexiest company" Walsh says about his company's investments. Castle Island is taking "a sober view of the market, and I think it is informed by a vision of what it is actually going to take to get institutional adoption for this technology." We are a bit like anti-cowboys. of this market. "

Banks and other large financial institutions have largely taken a cautious stance towards cryptocurrencies and blockchain systems. Fidelity is one of the major financial services companies that has been open to its interest in the industry, and has come to the point of establishing a mining operation of Bitcoin and Ethereum that has become profitable, reported the CEO Abigail Johnson at an industry conference last year. Goldman Sachs is considering the opportunity to expand its cryptocurrency services, but is proceeding "with caution," a senior executive at Bloomberg TV said in June. According to reports, JPMorgan has been exploring blockchain for the past two years and has recently appointed a manager to oversee its cryptocurrency strategy, according to Financial News and Fortune.

Some supporters of the blockchain believe it is a question of when, not if, the financial sector and other types of businesses will truly embrace such technologies. But industrial research suggests that the gap between hype and reality remains broad: a recent Gartner survey found that few companies are currently investing and implementing blockchain technologies, and a Forrester report last November predicted that some blockchain projects of companies would be downsized or even downsized stopped this year

One of the widespread barriers to adoption is that technology is not very easy to use. Walsh makes a comparison with the development of the Internet, saying that the blockchain sector is waiting for its moment of Web browser.

"At the moment, the user experience is simply terrible," says Walsh. "These blockchain networks will only be successful if most consumers who use them do not even know that it is powered by blockchain."

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Jeff Engel is a senior publisher at Xconomy. Email: [email protected] Follow @JeffEngelXcon

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