Bitcoin Association sits down with Jan Smit, founding partner at venture capital fund Two Hop Ventures and the Bitcoin Association Ambassador for the Netherlands, to discuss the investment outlook for blockchain businesses, the present state of play in the Netherlands, and why their fund chose to focus solely on start-ups in the BSV space.
A self-described ‘techie guy’, Jan Smit comes to Bitcoin with a unique background. Having studied physics at university, Smit pivoted to take on the world of business as a management consultant.
‘I ended up becoming a consultant for Bain & Company – a company that specializes in advising private equity funds – a move that started me down this path,’ Smit says.
‘I was very interested in digital currencies and blockchain technology, which led to an opportunity to join a fund that invests in the industry. That’s where I met my current business partner, Alex.’
Two Hop Ventures was officially formed in the summer of 2018, with Smit partnering with former Cyber Capital blockchain analyst, Alex Fauvel on the project.
‘We are a venture capital fund that invests exclusively in the Bitcoin SV space. We are a traditional fund, so we don’t invest in digital currencies or anything like that. We get commitments in traditional fiat currency from traditional investors, which we then invest in the equity of start-ups and scale-ups that we think are going to be crucial for the BSV ecosystem in the long term,’ explains Smit.
‘Five or six years down the road, we hope that we added value along the way to a business that has appreciated in value, where we can then sell that investment at a higher price and keep our investors happy. That’s the ultimate goal for our business.’
Getting to that stage however, will be a process. But over the course of its first two years, Two Hop has taken great strides towards making that goal a reality.
‘It’s a challenge to set up a fund: you need to have your legal documentation in place; have your partners in place; arrange for a fund administrator; open a bank account – which can still be a challenge if you’re seen as a blockchain company. It’s a lot of work,’ says Smit.
‘But all of that is relatively easy compared to getting the confidence of investors behind the team and the approach that you have, with a plan to generate a return for them. This is a challenge, because these are professional investors we are dealing with – the law requires a minimum investment of €100,000, but we require a commitment of at least €250,000.’
Two Hop passed a major milestone with their first closing in 2019, with further commitments announced at the CoinGeek: London conference in February, 2020.
‘The fund had its first close in November of last year, which is a pivotal moment for any fund,’ explains Smit.
‘Then at CoinGeek, we were very happy to be able to announce that we had invested in Centbee, who we see as a perfect example of the type of investment we are looking to make. They have a great team with lots of experience, but also a team with a lot of different capabilities – not just those from the finance industry, but developers who have grown up with Bitcoin.’
Smit says he hopes it will be the first of a number of closes to come, as he sees is an excellent time to be investing in businesses that aren’t yet on the radar of mainstream funds – even those operating in the blockchain and digital currency space.
‘This is a super exciting time. There are great opportunities! I am one hundred percent certain that most of these companies will grow to have valuations which are far beyond what they have today,’ says Smit.
‘To be able to buy at this level is really an opportunity in history, I would say.’
Two Hop chooses Satoshi Vision
When Two Hop was first conceived in 2017, it was done so at a time prior to the Bitcoin Cash (BCH) / Bitcoin SV (BSV) hash war in November of 2018, which led to Bitcoin SV emerging as its own chain to continue the original Bitcoin protocol. Originally, Two Hop was set to invest exclusively in businesses building on the BCH blockchain, but Smit says the emergence of BSV offered a superior alternative that fast became their focus.
‘Originally, our minds were fully set on Bitcoin Cash. In fact, we were engaged in organizing events around Bitcoin Cash at the time it was announced that the fork would take place,’ Smit reveals.
‘Both Alex and I were already much more on the non-anarchistic side of Bitcoin. What we wanted was a chain that operates in the daylight that businesses will therefore want to build on. When the philosophy of Bitcoin SV became clear, it was evident that it was a natural fit with our own, so when it became clear that the split would occur, we were on the BSV side and never looked back.’
For a company like Two Hop investing in long-term businesses, operating in grey areas isn’t an option. The uncertainty of an unstable operating environment and the ongoing prospect of regulatory clashes contributes too much to the risk factors of any company building on a blockchain that doesn’t open itself up to lawmakers.
‘We think businesses should want to build on the blockchain, but businesses want everything to be done in compliance with local legislation and the regulator, with everything operating very clearly in the daylight,’ explains Smit.
‘That was clearly the philosophy from Bitcoin SV and was clearly not the philosophy of Bitcoin Cash, which made it very easy for us to switch.’
Smit points to the Genesis upgrade of the Bitcoin SV protocol, which occurred in February and lifted the default block size cap entirely, as a factor which is resonating with the investment community.
‘Having a stable platform – that’s something that is very easy and very nice to be able to say to companies: this is a blockchain which has a protocol that is set in stone. There will be one or two small changes to get back to the original version, but it’s set in stone,’ explains Smit.
‘That gives you the certainty that if you invest in technology to build on it, it will continue to work, and it will scale. That’s just because of bigger blocks – it’s the ultimate combination.’
Such an ability to scale, combined with the certainty of data evident on the BSV blockchain, provides investors making plays with a long-term outlook a level of surety when considering companies that are at an earlier stage of development than may otherwise have been considered.
‘I think that there is no second blockchain which comes close to delivering the feature set that you have with BSV while being properly decentralized,’ says Smit.
‘We’ve seen what happens when blockchains aren’t properly decentralized, where it becomes a cabal of a few wealthy people who keep each other in power. That’s absolutely not what you want and not something that a business can build on.’
And for Smit, it’s not just a matter of talking the talk, but walking the walk. His capital outlay to establish Two Hop Ventures follows a series of personal investments he’s made in fledgling companies within the Bitcoin SV ecosystem – stakes that he’s confident will pay off in dividends down the line.
‘I think that with Bitcoin SV, there is a fantastic opportunity,’ says Smit.
‘It’s just a matter of continuing to build things and showing the world. At some stage, something will pop up that gets everyone’s attentions and from there, the focus will be full on.’
Bitcoin Association Ambassador: Netherlands
In addition to his full-time position at Two Hop Ventures, Smit serves as the Bitcoin Association Ambassador to the Netherlands – a role in which he is responsible for promoting and enhancing the role of Bitcoin SV within the Dutch business community – an audience that he says is becoming increasingly receptive to blockchain technology.
‘I think that the Netherlands is quite an innovative country,’ explains Smit.
‘We have a lot of start-ups here, and in Amsterdam we have the blockchain canals, where a lot of the blockchain start-ups are based. The reason for that is that if you group up as a business, you need a lot of parking space, which there isn’t much of alongside the canals!’
Smit says that while there is notable enthusiasm for blockchain technology domestically, but he sees the potential for more widespread utilisation by businesses and end-users alike.
‘I think blockchain adoption is slightly higher than average in the Netherlands. One of the advantages that we have is that everybody speaks English, so it’s a bit easier to pick things up and therefore, new technologies are usually picked up slightly faster in the Netherlands compared with other European countries,’ Smit explains.
‘More businesses have been gradually investigating the blockchain and are coming to realize that there are very good use cases. One example I’ve seen is with the Port of Rotterdam: all of the people who work there must check in and check out to the blockchain, so that the fire department can use the information for evacuations in the case of a calamity.’
Adoption by major enterprises – particularly public endeavours such as that seen at the Port of Rotterdam – will undoubtedly help to raise the profile of blockchain technology in the Netherlands. But while that is a positive move for Rotterdam and the Dutch blockchain community, Smit would like to see the government explore structural changes that could bring more surety and certainty to existing players in the space.
‘One thing that I think would help speed up development would be more clarity on regulation, especially around trading things on the blockchain and the implications that has,’ says Smit.
‘Lawyers need to be able to start to understand what it means when information is on the blockchain and be able to integrate it into their decisions.’
That said, Smit sees a bright future for blockchain technology and Bitcoin SV in the Netherlands – one that he fully intends to help build.
‘I don’t often talk to people in Holland who that that there are no use cases for the blockchain – that’s definitely not the case,’ says Smit.
‘Companies realize the potential and are gradually building. It’s just a matter of time now until everyone will see it!’