At a time when many blockchain companies went to zero during the industry’s “nuclear winter”,
BlockchainK2 Corp. (TSX-
V: BITK, OTCQB: BIDCF, Forum) executed a change of business and resisted the temptation to invest in businesses that proved to have flawed business models. BlockchainK2 Corp (“K2” or the “Company”) preserved the majority of its capital as dry powder and took meaningful stakes in emerging companies with experienced management, a differentiated strategy and a sustainable competitive advantage.
BITK is acquiring meaningful stakes into these companies for relatively small amounts of cash to take their business to the next level. In an interview with Stockhouse Editorial, the team’s leadership stated that the Company’s plan going forward is to raise more capital and deploy it efficiently in both additional capital for its associated businesses and to allocate to additional institutional quality businesses during this downturn. Management is currently reviewing several compelling opportunities to take advantage of the dislocations in the funding markets for early stage technology businesses.
BlockchainK2 Corp. is a holding Company investing in early stage companies that can be made more efficient through technology, including blockchain solutions. K2 has a diverse group of businesses within its portfolio that offer large addressable markets, multiple revenue streams and a clear path to increasing revenues and profitability. Here is a look at several companies that have benefited from BITK’s capital and value add.
RealBlocks:
In
October 2020, BITK invested into RealBlocks’ $7-million (USD) Series A round of financing. This financing was oversubscribed and led by an investment by Crosslink Capital, a prominent venture investor based in Palo Alto that manages over $1.8 billion (USD) in assets under management (AUM). BlockchainK2’s investment allows it to maintain its pro rata share of RealBlocks and adds to its previous investment, which was completed in July of 2019 as part of a $3.1 million seed round of financing by RealBlocks.
RealBlocks is a blockchain technology platform that onboards private equity, private real estate and private credit. RealBlocks uses its tokenized blockchain technology solution to enable secondary trading of limited partnership interests, bringing transparency, liquidity and price discovery to a $10 trillion industry. K2’s investment closed off RealBlock’s seed round of financing alongside several leading venture capital funds that specialize in the emerging technology and finance sectors. Notable names include
Science Inc.,
Morgan Creek Digital,
Zelkova Ventures,
Ulu Ventures, and
Cross Culture Ventures. With this strong institutional support and connections, RealBlocks is positioned to scale its business and take advantage of the large market opportunity.
A proven business model and a company that has traction, RealBlocks is comparable to iCapital Network, which has roughly $60 billion (USD) in AUM and has raised several hundred million dollars to date. This fintech company is comparable to RealBlocks, but the key difference is that RealBlocks is at an earlier stage, a more “ground floor” opportunity in the same space and has the feeder fund business model (asset management, recurring fee revenue), as well as the blockchain tech component to allow secondary trading of illiquid private equity and private real estate assets.
RealBlocks has multiple revenue streams including its technology solutions for fund administration as well setting up special purpose vehicles for non-traditional distribution e.g. independent Registered Investment Advisors who benefit from access to brand name alternative fund managers.
The tally of these represent more than $10 trillion in global AUM, as of 2020. The AUM market could increase 59% to $14 trillion by 2023, according to a report by
Preqin titled
“The Future of Alternatives”. The report pointed to excellent long-term investment returns and the continuing advantages of the alternative industry's diversification in attracting new investors. Roughly 80% of all institutional investors globally invest in alternatives. RealBlocks is taking advantage of the long-term trend of democratizing alternative assets through distribution to high net worth individuals. For example, Blackstone CEO Stephen Schwartzman emphasized recently his firm’s focus on diversifying its investor base by focusing on distribution to individual high net worth investors.
Alternative investments primarily consist of hedge funds, real estate funds and private equity. Long considered to be reserved exclusively for the most elite investors, over time access to these funds has been expanding to become prominent in many other traders’ portfolios. Demand for such investment opportunities that are not directly correlated with
traditional asset classes has been on the rise over the past decade. Investments within private equity, hedge funds and venture capital rose sharply in participation from 2008 to 2018, with the alternative investments market growing by a yearly average of
11.85%.
RealBlocks CEO Perrin Quarshie stated at the time that BlockchainK2 and the consortium of investors who support the initiative, are opening alternative investment opportunities to investors around the world.
“There is growing demand from investors and financial intermediaries to access the potential of the alternative investment market. Through the support of BlockchainK2 and others, RealBlocks is creating a new way to reach these opportunities.”
Taking an overall look at the platform, users must go through know-your-customer and anti-money laundering (KYC/AML) protocols, as well as investor accreditation checks, before logging into the platform. Once the user is onboarded, they can invest through the RealBlocks marketplace and access secondary trading via a bulletin board.
This opens some key competitive advantages and differentiating factors, such as:
- Connectivity to a large, global universe of placement agents and third-party marketers for capital raising
- Fully integrated, tech-enabled secondary trading
- Turn-key technology enhanced feeder funds allowing for rapid implementation to expand managers’ global distribution capabilities
The alternatives market is growing rapidly, much like other sectors of financial services, but it is quickly becoming more globalized and digitized. RealBlocks’ mission statement is to build a solution to meet the needs of the modern investment community through enhanced access and liquidity to alternative investments.
RealBlocks’ go to market strategy focuses on real estate asset management. Given the high global demand among institutional and high-net-worth (HNW) investors for real estate as a product, this firm is offering components “a-la carte”, including automated on-boarding and secondary trading. RealBlocks has also agreed in principle to be the sole international distribution partner for a large US real estate asset manager.
By opening up access to alternative investments through digitizing shares of the funds over a blockchain-enabled network, RealBocks has designed a network to create unmatched levels of liquidity and transparency in the traditionally complex world of alternatives, enabling fund managers, financial intermediaries and investors even greater control and impact over their performance.
RealBlocks connects fund managers with BlockchainK2’s network of distribution partners, including placement agents, third party marketers, registered investment advisors (RIAs), independent broker / dealers and bank trusts.
There is a global interest among international investors to allocate their capital toward US real estate. According to Preqin’s research, allocations to real estate are currently low in Latin America and the Middle East, but over the next five years this is expected to increase dramatically. Investors from across North America, Africa, Europe and some parts of the Asia-Pacific region are also expected to see an increase in allocation.
Sobe Organics Inc.
BlockchainK2 Corp. recently announced that the Company had
acquired a majority stake in the private beauty, health and wellness company,
Sobe Organics, Inc. - a platform that manufacturers, distributes a broad line of CBD-infused products. It owns the CBD beauty brand and e-commerce website,
Lux Beauty Club.
With a nationwide US network of more than 1,800 independent stores (including spas, resorts, pharmacies, salons, hotel chains and department stores), Sobe also sells its Food and Drug Administration (FDA)-certified products via its e-commerce site online. Sobe has several well-known brand names and distributes through differentiated distribution channels. For example, Sobe distributes its Ben Hogan brand to golf shops and resorts, its Lux beauty brand to spas and salons and its Gotcha brand to surf shops. Sobe’s portfolio of products offer pain management and sleep aid solutions. Management believes that these brands and differentiated distribution channels offer a unique platform with superior economics compared with direct to consumer brands. In addition, K2 is working with technology providers to verify the organic nature of ingredients and security of the supply chain.
The CBD space is projected to reach
$25 billion in global value in the next decade and amass upward of 15% of the total skincare market. Management believes that the natural products segment of the health and wellness sector will grow at a fast pace and that its offerings in pain management and sleep assistance will address a growing market need.
Standard Power:
Finally, BlockchainK2 has an agreement and income promissory note in place with
Standard Power, who owns and operates a site in Coshocton, Ohio with its own substation infrastructure operating on very low power costs and direct high voltage step down transformer capability, that is able host up to 50 megawatts of mining capacity in the short term with ultimate power capacity of over 500 megawatts. Power costs are in the $0.03 per kwh range, making it one of the lowest cost energy sources in a G7 nation.
Investment summary:
Blockchain K2 Corp. has been very conservative in husbanding its resources during the start-up and blockchain bubbles and is allocating its capital during the downturn. The Company is backed by proven management teams that can add value to its current and prospective portfolio investments. Two new members recently joined the Company’s board of directors - John Lima and Steven Sangha.
Blockchain K2 is pursuing additional opportunities in the downturn and welcomes interest in further investment to increase its dry powder to “be greedy when others are fearful” in the words of Warren Buffet.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.