The bitcoin and blockchain technology space may be going through some growing pains, but that doesn’t appear to be scaring investors away.
Last month, Crunchbase News’s Jason Rowley reported that the amount of money raised in old-school venture capital rounds by blockchain and blockchain-adjacent startups in 2018 had already surpassed the amount raised in 2017.
So we thought it would be fun to take a look at the top VCs that have pumped dollars into the crypto sector. Per Jason, we first created a list of companies in Crunchbase’s bitcoin, ethereum, blockchain, cryptocurrency, and virtual currency categories. We added to this list any companies that use those keywords, as well as “digital currency,” “utility token,” and “security token” that weren’t previously included in the above categories. After de-duplicating this list, we merged this set of companies with funding rounds and investor data in Crunchbase.
And here are the results:
And, in general, U.S.-based investors appear very interested in building funds for crypto.
Yet, ironically, for a technology that aims to be transparent, those who fund it aren’t eager to speak to the media. I contacted each of the ten funds that made this list and only heard back from two of them: Silicon Valley’s Plug and Play and Andreessen Horowitz. For good measure, I also talked to new(ish) investment firm Multicoin Capital to get their thoughts on the growing crypto field as well.
Let’s start with a16z crypto. On June 25, Andreessen Horowitz announced a new $300 million venture fund that will invest in crypto companies and protocols. In a blog post announcing the launch, General Partner Chris Dixon wrote that the fund “is designed to include the best features of traditional venture capital, updated to the modern crypto world.”
Andreessen Horowitz has been investing in crypto assets for more than five years. It’s never sold any of those investments and doesn’t plan to anytime soon, according to Dixon. In fact, the firm structured the a16z crypto fund to be able to hold investments for more than ten years.
“We are long-term, patient investors,” he wrote. “Crypto is a global phenomenon, with great projects all around the world, and we’ll invest accordingly.”
Dixon described the fund as an “all weather” fund that will invest consistently over time, regardless of market conditions.
“If there is another ‘crypto winter,’ we’ll keep investing aggressively,” he wrote.
So why create a new fund if you’ve been investing in the space for years? For maximum flexibility, according to Dixon.
“We’ll invest in traditional financial instruments like equity or convertible notes, and new instruments including the direct purchase of coins/tokens.,” he wrote. “We are focused on non-speculative use cases. We want services powered by crypto protocols to be used by hundreds of millions and eventually billions of people. Crypto tokens are the native asset class of digital networks, but their value is driven by the underlying, practical use cases.”
In addition to launching the new fund, Andreessen Horowitz announced that it had tapped Katie Haun to be its newest—and first female—general partner. The timing is not coincidental. Put simply, Haun is very impressive.
She spent over a decade as a federal prosecutor with the U.S. Department of Justice, where she focused on fraud, cybercrime, and corporate compliance failures alongside agencies such as the SEC, FBI, and Treasury. She was the U.S. Department of Justice’s first-ever coordinator for digital assets, and before that, she led prosecutions and jury trials involving organized crime, public corruption, RICO murders, gangs, and money laundering. She’s also on the board of directors of Coinbase, where she chairs its audit and risk committees. Haun also taught cryptocurrency at Stanford Law School.
Plug And Play
Plug and Play Ventures partner George Damouny was the only venture investor out of our top 10 that agreed to a phone interview.
The firm is “bullish” on blockchain, he said, with about 10 percent of its 1,000 active portfolio companies having some kind of blockchain or crypto aspect to their solution.
Plug and Play made its first crypto-related investment in late 2013 or early 2014 and continues to actively conduct equity investments in startups. Some of the companies it has invested in are dissolving their for-profit entities and creating nonprofits and foundations; therefore, some of Plug and Play’s equity is being transferred into tokens. But so far, the firm is not investing in new companies for tokens, token sales, or ICOs, but Damouny said it may consider it one day.
“A lot of ICOs and token sales are not worth much,” Damouny said. “I say over 95 percent have no real merit to them. If you dig into the white papers, there’s often something missing. To me, a user’s not going to hold 100 different tokens. It has to make sense in the market. Having some kind of merit with the blockchain is important.”
Given its network, Plug and Play mostly invests in B2B companies that are enabled by blockchain.
“We have banks, for example, coming to us with pain points and interests that oftentimes have some kind of blockchain or smart contracts on the back end,” he said.
Portfolio companies include Austin bitcoin blockchain startup Factom, Bext360, a Denver startup that tracks goods across the supply chain with blockchain on the back end, and Palo Alto-based Civic, which provides a blockchain based ecosystem that aims to give businesses and individuals the tools to control and protect identities.
“We’re seeing a lot of new adjacent technologies using blockchain, like supply chain and retail, so there’s a lot of potential,” Damouny added. “In particular, we’re heavily invested in companies that have blockchain on the backend assembling technology for their solutions.”
Austinite Kyle Samani discovered ethereum in January 2016. By the spring of 2017, he couldn’t think about anything other than crypto.
In August 2017, he and Tushar Jain formed Austin-based Multicoin Capital – a self-described thesis-driven crypto fund that invests in blockchain tokens and some startups – with $2.5 million in capital. Today, the firm manages $75 million. In March 2018, David Sacks and Bill Lee of Craft Ventures alongside Marc Andreessen and Chris Dixon became backers of Multicoin Capital. In a blog post, Sacks described Samani and Jain as “among the smartest, hardest-working, and most well-informed investors in the crypto space.”
“They are not just traders but technologists who know how to evaluate emerging technology in an extremely fluid and rapidly evolving space,” Sacks continued. “We’ve learned a tremendous amount from them.”
Multicoin Capital focuses primarily on tokens, although it does consider equity investments, and it recently made its first private equity investment in an undisclosed startup.
The firm has two funds: a hedge fund and a venture fund. Its venture fund is a closed end fund in which it will call the capital down on a deal-by-deal basis to deploy it. Samani believes that the fact that both founders have a tech background gives them a leg up on competitors.
“We have raised venture capital and had to go through the trials and tribulations of building a tech company. I think it’s a lot easier for tech teams, especially early-stage entrepreneurs, because you’ve gone through the motions yourself,” Samani said. “ A lot of them want technical investors. And since we’re very comfortable with early-stage technical risk, we can sit down with them and challenge assertions to really understand what they’re doing. We’ve found that it helps us in terms of evaluating investments. And it helps them because when an investor really gets how your technology works, you tend to want to work with them more.”
What’s ahead for the blockchain/crypto space is still up in the air. But one thing is for certain: When large venture firms such as Andreessen Horowitz are ponying up $300 million to invest in the field, that’s good validation.
Illustration: Li-Anne Dias