The rising interest in use cases for bitcoin's underlying distributed ledger, the blockchain, is influencing the investment strategies of venture capitalists, new interviews indicate.

Speaking to CoinDesk, some of the ecosystem's most frequent and most vocal investors are suggesting they are now working more closely with banks and putting an increased emphasis on projects that use the bitcoin blockchain or alternative distributed ledgers as a payments rail or distributed database.

For example, Bart Stephens, managing partner at Blockchain Capital, which recently rebranded its firm from Crypto Currency Partners, suggested the industry has "evolved" as awareness of the blockchain's use cases become more widely analyzed and understood.

Stephens told CoinDesk:

Others like Aleph Venture Capital partner Eden Shochat, whose investments include blockchain technology firm Colu, expressed more interest in distributed ledger applications, a part of the industry where new startups such as Blockstack, Eris and Multichain are now seeking to separate from a widening pack that lacks clear leaders.

"With bitcoin, we are less intrigued by quick in and outs of the bitcoin system, such as payment processing or remittance using bitcoin as a currency as an intermediate step," Shochat said. "That's generally optimizing transaction costs, but there are bigger opportunities, such as replacing inter-company supply chains via bitcoin payments."

Cross Pacific Capital

's (CPC) Marc van der Chijs was more direct in his assessment of his firm's interest in the industry. "We look more at blockchain startups, and not pure bitcoin payment companies like wallets and exchanges," he said.

Van der Chijs suggested CPC is now focused on applications for the technology in international money transfer and for distributed databases. Still, not every investor agrees that these are the immediate opportunities.

For example, Jeremy Liew, partner at Lightspeed Venture Partners, told CoinDesk he believes its use as a store of value is still the most compelling in the short term.

Elsewhere, Stephens spoke to the general increase in interest of major banks in the technology, reporting he has briefed the board of directors at roughly 15 major banks.

"Two years ago banks were focused on bitcoin and were scared as to what that meant, they saw it as dangerous and were scared of how banks would work with bitcoin businesses," he said. "Fast forward a couple of years, we've seen banks increasingly focus on blockchain."

Stephens said he has been spending more time introducing Blockchain Capital's portfolio companies to major banks. Blockchain Capital has so far made 37 investments in the industry, participating in funding rounds for major players including Blockstream, Chain, Circle and Xapo. He continued:

Given the recent interest from major banks in bitcoin and the blockchain, many investors also believe financial entities will soon start looking to acquire industry firms.

"I believe banks can’t innovate and, once they realize this, they will start buying bitcoin and blockchain startups," van der Chijs said, adding that some will be bought for their intellectual property, while others for experienced teams.

"That will be the first wave of bitcoin exits," he said, though he noted this was not likely to occur within the next four to five years.

Shochat was less convinced banks won't be able to innovate, suggesting he believes they can leverage their current knowledge to help startups solve problems in their value chain.

"There are so many opportunities, anywhere from clearing and vaults to bank-sponsored wallets and replacing SWIFT," he continued. "This isn’t the same role as venture investors, but banks can significantly direct ventures toward the right use cases."

Stephens further suggested he believes financial institutions are "moving slowly" and at this point, are just "information gathering" when it comes to the technology.

Liew, an investor in firms including Blockchain, BTCC (formerly BTC China) and Ripple Labs, was more dismissive of the role banks would play in any larger technology transition, suggesting these groups are not likely to replace the role of VCs in the ecosystem.

Despite a decline in bitcoin and blockchain VC investments in Q3, most investors surveyed reported this was unlikely a result of any waning interest in the industry.

Shochat, for instance, said Aleph typically only invests in 3% of the companies it sees across all sectors, and it is actively looking for deals with bitcoin startups. Van der Chijs echoed this observation, noting that CPC is transitioning from an early-stage to growth firm, and is now focused on late-stage investments.

Further, he suggested industry observers put the activity of VC firms in context of their overall deal flow. "Four investments may not seem like a lot of investments, but given that we only do about five investments per year out of over 300 companies that we look at, it’s actually quite substantial for us," he explained.

Of those surveyed, most reported they don't believe there's any significant funding crunch facing the industry. Despite the lack of major Series B and Series C rounds, Stephens attributed this to trends in the overall VC space, where seed funding is easier to obtain.

"In general in technology, you see a lot of seed-stage companies, but once you have that, it's challenging to get to a Series A or Series B," Stephens said. "Bitcoin is somewhat out of favor. In the last 15 to 16 months, the price of bitcoin has dropped 65-75%."

Stephens expressed his belief that savvy investors would continue to measure the ecosystem by factors such as wallet growth and GitHub participation, but suggested these are of less interest to the wider venture industry.

"The average VC is very focused on the price of bitcoin," he said, a remark echoed by Liew who said the "flatness" of bitcoin's price has created a decline in investor interest.

Correction: A previous version of this article stated Blockchain Capital had made only 20 investments in the ecosystem.

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