A Sequoia Capital partner explains why he's not scared of blockchain startups and how it's changing the VC business

The wariness is understandable to Matt Huang, a partner at Sequoia Capital. After all, investing in blockchain startups means betting on complex, new technology and putting your faith, and capital, into largely unproven alternatives to equity.

Despite the risks, and the fears of a "bitcoin bubble," Sequoia and Huang are jumping in. The storied VC firm,

He thinks the technology is exciting, and the companies have real potential to change the world

Orchid Labs created its own blockchain, called the Orchid protocol, on top of which it's building a decentralized overlay to the internet, which it claims will be impenetrable to national firewalls and other forms of censorship.

Huang said Orchid's mission struck him as both achieveable and useful in today's political climate.

"There's lots of exploration right now around what are the interesting or useful applications beyond bitcoin," Huang said. "Orchid struck us as one of the first killer apps that we can see getting broad appeal. It also has an important mission that we think is very timely in the world today."

He's followed the sector for long enough to know that it's more than just hype

He sees people leaving great jobs at Google and Facebook to join blockchain startups

Still, he thinks the industry needs to set better standards around fundraising

SAFT is the investment technique Sequoia used with both Orchid Labs and its other blockchain start up called Filecoin. SAFTs are popular in the blockchain space because they allow investors to put money toward the technology, rather than a centralized company.

SAFTs are particularly useful for investing in products like the Orchid protocol, which ultimately could become an open source project supported by a community of engineers, rather than a structured team. Huang compared this to the bitcoin protocol, which was developed by a team but has spread like wildfire since being left out in the wild.

Most venture capital firms — Sequoia included — are used to the old equity model, in which investors purchase private shares of a company, often while mentoring the founders to help the company reach its full potential.

SAFTs — in which investors are promised a set number of tokens which don't yet have any value — are such a new way of investing, however, that many venture capitalists are writing the rules on the go, Huang said. In the long run though, he hopes to see some of the best practices developed in venture capital trickle into this new way of doing business.

"One of the big distinctions between equity and tokens is that there are more protections around equity. Investing in SAFTs is new territory; and I think what you're seeing is that a lot of this ecosystem is learning in real time how best to structure these things," he said.

"We're really interested in seeing more of these venture mechanisms enter the blockchain space. It's not to say that you have to copy exactly what evolved on the equity side, but you don't have to reinvent from scratch either and there are definitely best practices."