It’s not something you can say every day: Cleveland is now a local base for a global, blockchain-focused investment fund.
And while Grasshopper Capital will look for investments across the globe, the presence of some of its key advisers here could be all the more significant for relevant startups, particularly those looking for their place in an innovative tech scene the ongoing Blockland initiative aims to develop here.
Although its LLC is based in Delaware, Grasshopper is a legacy Cleveland hedge fund originally designed to invest directly in the myriad cryptocurrencies flooding the sector of digital money.
It was acquired earlier this year by TCM Global Asset Management, an Australian firm focused on digital ledger technology (i.e. blockchain), which has revamped Grasshopper as its venture funding arm. The group is currently working on raising between $50 million to $75 million for what is Grasshopper’s second fund overall, but the first with a venture strategy. The plan is to invest in companies seeking funding at the seed to series B stages.
It’s a new identity for Grasshopper, which was launched in summer 2017 by Ari Lewis and Sagar Rhambia, two young Case Western University grads who had been trading cryptocurrencies on their own for a few years.
The two say they seeded their first fund with an $18,000 investment in cryptos like Bitcoin and Ethereum that turned into $1.4 million.
Grasshopper was formed to capitalize on that success and turn crypto investing into a proper business. The fund drew additional capital from a couple dozen investors — such as Cleveland family office Weinberg Capital Group, which created WCG Crypto LLC specifically to put some money with Grasshopper — who wanted a taste of exposure to the alternative asset class as Bitcoin prices exploded in 2017.
Bitcoin started that year worth fewer than $1,000 a coin, then skyrocketed to $19,511. Financial press dubbed the phenomena “cryptomania.” By the end of 2018, it had fallen again to about $3,400.
Grasshopper got out and returned money to investors a little before then.
Lewis said that from August 2017 through October 2018, Grasshopper’s inaugural fund outperformed the performance of Bitcoin itself by 10%, enhancing their reputation in the crypto world and leaving investors generally satisfied.
The exit from crypto was influenced by TCM, which learned of Grasshopper through Frank Amato, co-founder of Block5, a blockchain capital investment and advisory firm. Amato — who moved back to Cleveland a few years ago and is working on drawing tech companies to Northeast Ohio, a goal of the Blockland initiative — first learned of Grasshopper from a February 2018 Crain’s feature. He previously ran the London office for Block5 and started advising the Grasshopper team once connected with them.
TCM CEO Jon Deane was considering investing in Grasshopper’s crypto fund in later 2018, but he said he didn’t go forward with that because of “market timing.” Yet, the firm believed “strongly” in the background of Lewis and Rhambia, he added, which was the “most attractive thing for us.”
“We wanted a presence in the U.S., and Grasshopper looked like a good opportunity with strong roots in Cleveland coupled with some very exciting talent in Ari and Sagar,” Deane said.
As far as Grasshopper’s crypto exodus, that was motivated in part by steep swings in crypto values as well as institutional custodians for the crypto asset class coming online — something that wasn’t as common when Grasshopper first got into the game. Companies like Fidelity Investments, for example, were just forming their own crypto-trading platforms last fall as TCM and Grasshopper were talking out a deal.
“It just didn’t make sense to move forward with a token fund model in place with all these institutional custodians coming online,” said Amato, now a general partner with Grasshopper.
So TCM sought to restructure Grasshopper as a VC fund. The sense is there would be greater opportunity to help commercialize projects building the applications on both public and private blockchains in the short term.
“We also felt investors were still struggling with investing in ‘pure’ crypto. However, they wanted exposure to blockchain via the companies capitalizing on it,” Deane said. “So we remodeled Grasshopper to focus exclusively on investing in seed to series B rounds for companies building blockchain solutions across financial services and commodities.”
Those include trade finance solutions, clearing and settlement, Deane said. He named some companies as comparative examples like OTCXN Inc. and Xpansiv (both in San Francisco) and InfiniGold (Australia).
TCM also added well-known venture capitalist Nisa Amoils — who folks in the crypto, blockchain, fintech and venture circles may know by her regular contributions on those topics for Forbes, among other interviews in financial press — to further build out the Grasshopper team as well.
Lewis and Rhambia still are involved with Grasshopper as advisers.
While fundraising continues, Deane emphasized that the Grasshopper fund is looking for deals worldwide.
Yet, Amato, Lewis and Rhambia still are stationed in Cleveland. And while there are no immediate deals in the pipeline, the team will certainly be vetting potential local investments.
“First and foremost, we see Cleveland as a great opportunity for the fund. We are globally based, however. Too many funds only look for deals in certain jurisdictions,” Deane said. “Having Frank and Ari’s exposure in Ohio, Nisa’s presence in New York, and the majority of the TCM in (Asia-Pacific), we get great exposure for deal access. We also have the opportunity to help commercialize projects globally as they gain traction. The majority of the team has also been, at some stage in their career, global. So we see it as an opportunity.”
But as far as Grasshopper’s founders are concerned, the opportunity to channel additional VC money to this region’s tech scene probably can’t be understated.
“We have a long way to go in terms of bi-venture money here (in Northeast Ohio) and getting funds to invest in the Midwest,” Lewis said. “We want to hopefully be part of that movement and help put Cleveland on the map as a technological hub. There’s no reason we can’t be the next Silicon Valley.”