Crypto VC investor Shima Capital faces challenges in forming lasting partnership with independent auditor.

Crypto VC investor Shima Capital faces challenges in forming lasting partnership with independent auditor.

The Challenges Faced by Blockchain Companies in Finding Auditors

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Blockchain technology has gained significant traction in recent years, with numerous companies venturing into the crypto sector. However, even amidst this rapid growth, blockchain firms are facing a unique challenge – finding auditors to validate their financial statements. Shima Capital, a prominent venture fund in the crypto sector, is a prime example of a company struggling to secure a long-term independent auditor.

Shima Capital, which has raised $200 million for its debut fund and invested in nearly 200 startups, has not undergone a formal audit since its launch in 2021. This is an alarming situation, given the increasing demand for transparency and accountability within the industry. Despite attracting high-profile backers such as billionaires Bill Ackman and Alan Howard, former presidential candidate Andrew Yang, and industry heavyweights like Animoca Brands and Dragonfly Capital, Shima Capital has faced difficulties in finding a qualified auditor.

The company’s search for auditors has been met with challenges due to the unique risk parameters associated with the blockchain industry. According to documents reviewed by The Block, Shima attempted to engage the auditing firm Richey May & Co. for tax and auditing services but was unsuccessful. Another potential auditor, BDO USA, fell outside the firm’s risk parameters due to a policy change. Marcum LLP was then engaged as an auditor, but it was determined that Shima did not meet their risk parameters either.

The struggle to find auditors is not limited to Shima Capital alone. Even Animoca Brands, another active web3 investment firm, faced significant delays in releasing audited accounts for 2020. The complexities associated with token sales and non-fungible tokens (NFTs) posed unique challenges during their financial auditing process.

The blockchain industry’s struggle to secure auditors can be attributed to several factors. Firstly, auditors may lack the necessary expertise and understanding of the unique aspects of blockchain technology. Token sales, smart contracts, and decentralized finance (DeFi) protocols present complexities that traditional auditing practices may not adequately address. Secondly, auditors face the challenge of assessing and mitigating the risks associated with the rapidly evolving and often volatile nature of the crypto sector. The lack of established regulatory frameworks and standards further complicates the auditing process.

To address these challenges, auditors need to adapt their methodologies to accommodate the nuances of the blockchain industry. They must invest in developing expertise in blockchain technology and stay abreast of the latest advancements and regulatory developments. Collaboration between auditors and blockchain companies is crucial to establish best practices and standards that can guide the auditing process effectively.

In addition to the technical complexities, blockchain companies also face a funding gap compared to other emerging technology sectors. The meteoric rise of artificial intelligence (AI) has diverted significant venture capital funding away from the crypto industry. In the first quarter of this year alone, the AI industry raised approximately $18 billion in funding. This lack of funding further exacerbates the challenges faced by blockchain companies in attracting and retaining auditors.

Despite the difficulties in finding auditors, blockchain companies like Shima Capital continue to play a vital role in the crypto sector. They have emerged as active investors, supporting the growth and innovation within the industry. However, it is essential for these companies to address the concerns raised about the accuracy of their investor presentations and ensure compliance with regulatory requirements.

In conclusion, the blockchain industry’s struggle to find auditors highlights the need for specialized expertise and a comprehensive understanding of the unique aspects and risks associated with blockchain technology. Auditors must adapt to the evolving landscape of the crypto sector and establish industry-specific standards. Collaboration between auditors and blockchain companies is crucial to foster trust and transparency within the industry. Despite the challenges, the blockchain industry continues to thrive, and with the right auditing practices in place, it can gain the confidence of investors and regulators alike.

Table of Contents

  1. Introduction
  2. Challenges Faced by Shima Capital in Finding Auditors
  3. Challenges Faced by Crypto Funds in Finding Auditors
  4. The Complexities of Auditing Blockchain Companies
  5. Addressing the Challenges: Collaboration and Adaptation
  6. The Funding Gap and its Impact on Auditing
  7. Conclusion