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Leona Fung December 31, 2021
Background
Blockchain, a distributed and immutable ledger, may be most known for its practical use within digital currencies, but apart from that, it can be applied in many different use cases. From the financial industry to the gaming industry, the size and scale of potential blockchain applications are tremendous, covering a broad spectrum of different use cases in nearly every industry.
In the past three months, I have been creating a blockchain startups database in which I collected startups worldwide - founded in the yearly range from 2015-2021 - that are based on blockchain technology or are just embracing blockchain, like cryptocurrency exchanges for example. In the following, I would like to share my main findings and my database with you.
In total, I collected 549 blockchain startups from Crunchbase, Tracxn and Golden, a blockchain companies database.
https://docs.google.com/spreadsheets/d/1KGNiPi5tfNYarQB9X8rvBRCWlf6jtgRRpvYJQHvh5F4/edit?usp=sharing
Number of Startups
From 2015 to 2021, a predominant amount of blockchain startups was founded in 2017 and 2018, representing approximately 52% of all startups in the database. Most startups were founded in 2017 and 2018 which presumably might correlate with the bitcoin price. The second halving of the bitcoin price in 2016, a process repeated after 210,000 blocks in which the miner’s reward gets halved, resulted in a bullish trend where bitcoin reached five figures for the first time and nearly touched the $20,000 mark. Cryptocurrencies gained a lot of attention by the media and attracted a large number of new joiners to the cryptocurrency market (Ricou, 2020).
Blockchain startups’ application fields
18% of the blockchain startups in my dataset are cryptocurrency exchanges, 16% software and blockchain protocol development and 15% financial services, which are enabling lending and borrowing cryptocurrencies, cryptocurrency payments and international money transfer. Altogether, those three use cases come to almost half of the total identified field of applications. Approximately 6% of the application fields are wallets for storing private keys to cryptocurrencies. Blockchain-based games and Non-Fungible Tokens, called NFTs are making around 5% of blockchain use cases. The latter are digital art pieces and collectibles that can be publicly viewed and even downloaded, but have a - on a blockchain saved - proof of ownership linked to it (Nadini et al., 2021).
A lot of the startup’s business models are already existing without blockchain technology and therefore not novel, like video games or social media platforms deployed on a blockchain for example, which are offering incentives for posting valuable posts in form of tokens. Application fields that provide real benefits and are useful can be hardly found in my dataset, for example supply chain and identity management each constitute roughly 3%. Above that more minor use cases were found like appliances in the energy industry (0.9%), in the field of IoT (0.5%) or governance (0.2%) for example.
I compared my application fields with Friedlmeier et al. (2016) who has done a similar research approach in the past and examined the blockchain startups’ industries they were operating. Overall, I could find a match between my found main application fields. As 2016 you can still today find a high density of cryptocurrency exchanges, financial services, and software companies. I could identify a minor increase in healthcare and social media compared to 2016.
I also compared my application fields with the top five most published blockchain applications that appeared in peer-reviewed journals found by Abou Jaude and Saade (2019). In their literature review they found out that most researchers focus mostly on blockchain practical use cases in IoT, energy, healthcare, finance and governance. In contrast, my top five blockchain applications are in the area of cryptocurrency trading, financial services, software development, cryptocurrency wallets and gaming. The application fields mentioned by Abou Jaoude & Saade are rather a niche use case, except for the field finance. The discrepancy between the emphasis of blockchain use cases published in academia, with the blockchain startups’ application fields in my dataset is due to institutional hurdles and lack of technical understanding of blockchain technology. Only the blockchain application field finance constitutes an application that is highly suggested by researchers and at the same time is a very popular blockchain application in my dataset which high number can be explained by the hype of cryptocurrencies and the prospects of high profit.
Blockchain startups’ financing
Investor Type
With regard to the financing of blockchain startups, the majority is funded via venture capital. 9% of the startups are financed by an Initial Coin Offering (ICO), 7% accelerator, 4% incubator and business angels (BA).
ICOs are - after venture capital - the second most used way of startup financing in my dataset that resembles crowdfunding, since anyone can trade with the tokens issued at an ICO (Li & Mann, 2021). Moreover, I could also observe a trend of using ICOs as a way of funding especially in the years around 2017 to 2018, which shows that ICOs are mainly used for launching a new venture, since this time period is characterized by the highest number of new blockchain startups in my dataset.
In contrast, the IPO is one of the least found financing options with only eight startups out of 549 startups in the dataset. Unlike ICOs, issuers at an IPO are typically a large, established, profitable or at least revenue-generating corporation (Li & Mann, 2021). Since blockchain technology is a relatively new technology, most startups in my dataset are in the seed or early stage, which explains why IPO can be hardly found as a financing option in my dataset.
Investment stage
Next to the investor type, it is interesting to evaluate the investment stage, which can be depicted from the table below. 24% of the startups are in the seed stage receiving an average funding amount of $ 4,713,360. 18% of the startups in the dataset are in the early stage and receive an average funding amount of $ 46,186,910. For 269 startups, no information about the investor type and investment stage could be found.
Distribution of the average funding amount across blockchain applications
The funding amount of all startups altogether sums up to $ 21.56 billion. Financial Services receive the biggest amount of funding, followed by Cryptocurrency Trading Platforms and Software. Those three application fields altogether received nearly $ 12.03 billion of funding, representing approximately 56% of the overall funds. The startups in those fields are on average older and had, therefore, a longer time to raise more investment fundings and the opportunity to acquire other startups.
Besides, other blockchain application fields that gained more than 1 billion USD total funding are Marketing, Gaming, NFT and Real Estate. Only 9 out of the 37 blockchain applications received less than 10 million total funding: Agriculture, Automotive & Motorcycle, Consulting, Cost Accounting & Accounting, Education, Human Resources, Insurance, Sustainability, and Tourism.
Location of blockchain startups
Geographic distribution of blockchain startups
The distribution of blockchain startups worldwide covers great parts of the world. Europe counts by far the most blockchain startups with a total of 249, followed by North America with 153 startups, which are predominately located in the US. Asia ranks third with 101 blockchain companies and has a high aggregation of blockchain startups in Southeast Asia, in India, and China. South America and Africa both record 13 blockchain startups. It is notable that the blockchain startups on the African continent aggregate on southern and western Africa. Lastly, Oceania counts five startups all located in Australia.
Blockchain startups hot spots
A more detailed look into the absolute distribution of blockchain startups and its percentage distribution of funding amount is provided in the table below. The 29 countries represent 90.16% of the blockchain startup landscape in 62 different countries.
With 133 entries, the US counts by far the most blockchain startups and at the same time received -with a share of 36.23% - by far the most amount of fundings. With regard to location, the blockchain landscape is dominated by the US. Around one-fifth of those are located in San Francisco, which serves as one of the greatest high tech and innovation hubs worldwide, and hence offers good preconditions for blockchain startups, like highly skilled and well-educated professionals but also facilitated access to fundings, since many investors are located around Silicon Valley (Fields & Cohen, 1999). Friedlmaier et al. (2016) explained the US predominance in the blockchain startups landscape with the US’s trial-and-error culture and openness towards innovations which helped the US to a leading position.
Spain ranks second with 72 startups, while a little over one-third of them is located in Madrid, and another third in Barcelona. The Spanish government heavily invests in blockchain applications within the public and private sector and has also presented the prospect of tax incentives to attract blockchain companies in the past (International Trade Administration, 2018).
Germany and Singapore are ranking third with each a total of 31 startups, and are also characterized by a government that is encouraging the development of blockchain technology. While Singapore’s government encourages the adoption of blockchain technology by launching a blockchain innovation program (Shu, 2020), the German government approaches this technology with a blockchain strategy containing a policy framework for blockchain technology (Federal Ministry of Finance, 2019).
Adoption Rate
Audretsch (2002) argues that SMEs, including startups, are often the innovators playing a dynamic role in the economy because they adopt novel ideas and technologies faster than large enterprises. Applied to blockchain technology, this suggests that novel blockchain applications mostly emerge from startups (Fiedler & Sandner, 2017). Hence, blockchain startups allow to draw conclusions about the adoption rate of blockchain technology.
Blockchain technology is still in its early-stages of development, since 42.26% are still in the investment stage of either seed or early-stage capital, while only 5.10% are situated in either the later or even expansion stage.
Moreover, only little increase in blockchain application fields can be seen compared to Friedlmaier et al.’s publication in 2016 indicating that the blockchain adoption is very slowly progressing, which is echoing the blockchain adoption framework by Lansiti and Lakhani (2017) in which they explain that it will take years for blockchain technology to transform businesses. In their framework they show the four phases of technological adoption which is characterized by the degree of novelty and difficulty of implementation in terms of the involvement of different parties and institutional agreement. The majority of the blockchain use cases in my dataset mirror the beginning of its technological adoption since they gain traction as a single use case or substitute to already existing products or services – such as cryptocurrency payments – that are characterized by low novelty and little involvement of third parties for its implemention. In contrast, disruptive blockchain applications are characterized by ranking high in novelty but at the same time being difficult to implement since they require different acteurs and institutional agreement, and hence take years to adopt (Lansiti & Lakhani, 2017).
As my comparison with the blockchain applications literature shows, disruptive and novel blockchain use cases suggested by researchers (Abou Jaoude & Saade, 2019) are still hardly widespread in the blockchain startups landscape and need more time and regulatory provisions for attracting more entrepreneurs envisioning applying blockchain technology in the fields of IoT, energy, healthcare, and governance.
Conclusion
The study collects 549 blockchain startups founded in 2015-2021 from Crunchbase, Tracxn, web articles, and Golden to understand the current state of blockchain startups application fields and blockchain startups hot spots, as well as contrast it to past blockchain startups and applications research. The highest density of blockchain startups can be found in 2017–2018 which might correlate with the high bitcoin price back then. Blockchain applications mainly focus on trading cryptocurrencies, software development, and financial services, which remained largely the same as 2016 indicated by Friedlmaier et al. Most of the blockchain use cases already exist without blockchain technology and are therefore not novel. Blockchain use cases in the sectors of energy, IoT, healthcare and governance are most published by researchers and portray a useful, novel, and disruptive application (Abou Jaoude & Saade, 2019) but are still hardly widespread in the blockchain startups landscape which mirrors the still early-stage of blockchain technology. The majority of blockchain startups are financed by venture capital or ICOs, while being situated in the seed or early-stage capital investment stage. Regarding location, they are dominantly aggregated in the US, Spain, Singapore, and Germany which is favoured by either facilitated access to investors and resources or the government’s support. Since blockchain startups are a dynamic and continuously growing nascent business field, it remains exciting to see how the blockchain startups ecosystem will develop in the future and gets adopted in various industries.
References
Abou Jaoude, J., & Saade, R. G. (2019). Blockchain Applications – Usage in Different Domains. IEEE Access 7, 45360-45381. https://doi.org/10.1109/access.2019.2902501
Audretsch, D. (2002). The Dynamic Role of Small Firms: Evidence from the US. Small Business Economics 18, 13-40. https://doi.org/10.1023/A:1015105222884
Cohen, S., & Fields, G. (1999). Social Capital and Capital Gains in Silicon Valley. California Management Review 41(2), 108-130. https://doi.org/10.2307/41165989
Federal Ministry of Finance. (2019). German government adopts blockchain strategy. Retrieved 17 December 2021, from https://www.bundesfinanzministerium.de/Content/EN/Standardartikel/Topics/Financial_markets/Articles/2019-09-18-Blockchain.html#
Fiedler, M., & Sandner, P. (2017). Identifying leading blockchain startups on a worldwide level. Frankfurt School Blockchain Center.
Friedlmaier, M., Tumasjan, A., & Welpe, I. M. (2016). Disrupting Industries With Blockchain: The Industry, Venture Capital Funding, and Regional Distribution of Blockchain Ventures. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2854756
International Trade Administration. (2018). SPAIN BLOCKCHAIN TECHNOLOGY. Market Intelligence. Retrieved December 15, 2021, from https://www.trade.gov/market-intelligence/spain-blockchain-technology
Lansiti, M., & Lakhani, K. R. (2017). THE TRUTH ABOUT BLOCKCHAIN. HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION 95(1), 119-127.
Li, J., & Mann, W. (2021). Initial Coin Offerings: Current Research and Future Directions. In (pp. 369-393). Springer International Publishing. https://doi.org/10.1007/978-3-030-65117-6_15
Nadini, M., Alessandretti, L., Di Giacinto, F., Martino, M., Aiello, L. M., & Baronchelli, A. (2021). Mapping the NFT revolution: market trends, trade networks, and visual features. Scientific Reports 11(1). https://doi.org/10.1038/s41598-021-00053-8
Ricou, E. (2020). Bitcoin halving dates history. Retrieved December 29, 2021 from https://stormgain.com/blog/bitcoin-halving-dates-history#nav_head_6
Shu, C. (2020). Singapore’s government launches blockchain innovation program with $8.9 million in funding. Retrieved December 17, 2021, from https://techcrunch.com/2020/12/06/singapores-government-launches-blockchain-innovation-program-with-8-9-million-in-funding/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALDuAU6Htp8mKPFtX873gG14MitubEpB3T9NaApzcVvuBd48TxppozuZol0Xxh2fFhyXA0hillWYnenU2kKn2vjSCYQ9dqQeU4akhUZZfj1X_RAjJUiTvbqlCkT9FVfDkCXaU91Ch-72ddL-1vK7YdjGJixWqza5LgboAjtehsCK