Source: Giphy

The hottest deal in venture-land right now isn't a venture deal at all: It's the massive pre-ICO for encrypted messaging startup Telegram.

Details: Brand-name Silicon Valley firms like Benchmark already have (quietly) signed on to what reportedly could be a $500 million offering, after which Telegram would sell even more tokens to develop its own blockchain platform and native cryptocurrency.

That's the front-of-house business. In the back-of-house, venture firms are frantically reworking fund agreements to permit crypto investments.

  • A Silicon Valley fund formation lawyer tells me that around one-third of new VC fund documents include new language that explicitly permits the purchase of crypto assets, often with some sort of concentration limit.
  • The lawyer also says that he's now spending at least half his time fielding calls from clients asking crypto-related questions.
  • Existing funds often are going to LP advisory committees for permission to do such deals, particularly if they are purchasing actual tokens. Pre-sales are generally structured as simple agreements for future tokens (SAFTs), or contracts that legally double as securities.
  • One big complication is how to handle in-kind distributions. Most LPs don't yet know what to do with tokens, and it gets even more complicated for registered investment advisors (i.e., most funds-of-funds) who need to have their assets held by qualified custodians. In short, it's unclear if any custodians are actually qualified to hold tokens.

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