A Tokyo-based venture-capital firm still raising capital for its debut fund called Nemesis Technologies is creating a business model that it hopes will enable to launch unit shares in the fund on a digital-asset exchange, and thereby make it available to retail investors.
Pierre Mauriès, the founder of Nemesis, and a veteran of Carlyle Group as well as PwC’s tech practice, said, “We’re going to use blockchain to decentralize our own assets…we will do a digital IPO of our investment vehicle in order to democratize access to deep-tech venture capital.”
Nemesis is targeting a $500 million raise from institutional investors, with a soft close this spring and a hard close in summer. It will be structured as a typical 10-year VC fund, but Mauriès wants to use technology to transform Nemesis into something closer to perpetual capital.
This is because he believes the huge amount of capital that is required for hardware-focused deep tech is greater than what a typical VC fund can provide. And that the complexities of deep tech will require portfolio companies to stay private for a long time , perhaps much longer than the lifetime of a VC fund. Therefore the VC needs to find exits other than IPOs.
New VC model needed
The opportunity for venture capital is changing as the era of super-cheap money and no inflation gives way to a price for capital. The scale of the world’s challenges also seem bigger, and Mauriès wants to see VC tackle big problems like climate change and demographic decline.
This means going beyond a focus on consumer internet, Software-as-a-Service, and cloud businesses. Those tech players were frequently pumped up by shorter-term VCs that invested in various rounds to boost valuations and achieve an IPO. But the poor performance of many such IPOs, often because the companies weren’t profitable, has burned LPs.
Yet the need for investors to access the illiquidity premium of startups, as well as to give people access to the most innovative companies in the world, means demand for private companies is going to increase.
Similarly, deep-tech companies need a lot more capital than a software company. In the software world, VCs compete ferociously to get on cap tables, and it’s a zero-sum game. But Mauriès argues that capital-hungry private companies will reward VCs that can open other doors to funding, which changes the competitive driver for the VC.
Based on blockchain
The goal for Nemesis is to encourage very long-term investing in companies, and to throw open the doors to as many LPs as possible, be they institutions or retail. It is using blockchain tech to attempt this.
Nemesis is partnering with Securitize in the US and InvestaX in Singapore to pave the way for an eventual digital IPO, with these fintechs serving as sponsors for LPs in the US and Asia, respectively.
Nemesis hopes to IPO a token representing unit shares of its fund on the Osaka Digital Exchange (ODX), a joint venture in the works between two of Japan’s biggest financial groups, SMBC and SBI. The idea would be, once Securitize and InvestaX have gathered a big enough LP base, including retail investors, to issue units in the Nemesis fund with a three- or four-year lockup (a short timeframe in the VC world).
Nemesis would convert its portfolio fund into an open-ended structure. LPs could use the digital token to sell part or all of their holdings in Nemesis’ funds, thereby allowing them to enjoy early liquidity if that’s what they want. A secondaries market would develop on ODX. Similarly LPs could avail themselves of traditional secondary markets in private equity.
Different exit strategy
This way, Mauriès envisages a VC like Nemesis will achieve liquidity (exit) via secondaries and strategic sales to larger private-equity companies, rather than via IPO. This would in turn give portfolio companies the ability to stay private longer, continue to access capital, and focus on big tech or business problems.
Typically, VCs and founders enjoy higher valuations from IPOs than from strategic sales. Mauriès downplays this and says he is not chasing metrics such as internal rates of return.
“IRR is overrated,” he said. “We’re not looking for unicorns to list, but to build gorillas that can stay private for as long as possible.”
This requires a certain kind of investor, but with blockchain enabling early liquidity, this could compensate for the lack of an eventual IPO payoff, while creating a means of replenishing capital in the fund.
Setting the stage for tokenization
Nemesis still needs a lot to go right on the regulatory front, especially allowing retail investors to access Nemesis tokens on ODX, and Mauriès says he is launching the fund with the view that it will take four or five years before all of the underlying blockchain-related regulations are in place.
But he is optimistic that Japan will serve as a good place to try. In addition to efforts to build ODX, the government has already allowed people to invest in cryptocurrency with life insurance assets.
And Nemesis doesn’t have to wait to lay the groundwork. In addition to working with Securitize and InvestaX, it plans to release a parallel net-asset-value (NAV) statement embedded in a token. This will eventually be used to track the value of its digital unit shares, with the goal of having these accessible to LPs by 2026. This would give investors the information they need to trade Nemesis tokens, fractionalize exposure, and calculate the units’ worth.
All of this infrastructure is going to support a VC portfolio in deep tech, including companies in cybersecurity (including space and military tech), healthcare (from molecular biology and neuroscience tech to regenerative artificial intelligence), and decarbonization (such as carbon-capture farming).
Gorillas in the miso
Mauriès says a lot of these future “gorillas” will come out of research labs, including those tied to universities. Japan has plenty of research scientists who could use the help of a VC to commercialize their work.
The country lacks the kind of university business parks, such as those pioneered by Stanford University. Mauriès says Japanese universities lack the deep endowments of US peers, and so the most they can ever put behind a student’s project is $500,000.
That might be enough for a SaaS company but won’t go far in deep tech. (The only exception is the Okinawa Institute of Science and Technology, which does have a US-style incubator program. “Down in Naha!” Mauriès gasps. “None in Tokyo! It’s ridiculous!”)
Japanese VCs are also too timid, often preferring convertible bonds or other debt instruments to investing their own balance sheet into startups. Mauriès hopes his blockchain-based structure will provide the capital to fund incubation programs that can support lab-based scientists for the long haul.
“Most local VCs just want quick ins and quick outs in things like fintech and digital payments,” Mauriès said. “Nemesis will be taking technology risk, not market risk. We want to find the equivalent of the next Microsoft DOS or iOS operator.”
