Venture capital has long been core to the success of Bitcoin and other cryptocurrencies. When this industry was still shunned by mainstream funders, it was the venture capitalists and the angel investors that tossed money at the space.
American billionaire Tim Draper — who invested into SpaceX, Tesla, Skype, amongst other plays — invested $14 million in Bitcoin when it was still an obscure asset for criminals and still thinks it will hit $250,000. Garry Tan, a co-founder of Initialized Capital, helped to kickstart Coinbase’s rise to the top of the crypto space with a cheque in 2013. And so on.
This trend of venture capital betting big on cryptocurrency is seemingly set to continue with news that Andreessen Horowitz (a16z) — one of the largest Silicon Valley venture capital firms — is in the midst of formulating a new crypto and blockchain fund.
a16z Wants to Raise $450 Million for a New Fund
According to a Financial Times report published April 14th that cited “two people briefed on the matter,” the venture capital firm is looking to raise $450 million for its second cryptocurrency and blockchain investment fund. One of the people said that the fund could be finalized within the coming week, but added that the $450 million fund cap could be adjusted, presumably depending on demand.
Andreessen Horowitz first waded into the crypto space with an investment in Coinbase, then doubled down on its support for Bitcoin with a $350 million raise in 2018 to invest in projects like Dfinity and ventures working on digital currencies, namely Libra. It has also made direct purchases of cryptocurrencies.
To further signal its support for crypto, Andreessen Horowitz has also launched a crypto startup school, which has had to convert its operations digital due to the coronavirus outbreak.
DeFi Could Be a Focus
DeFi could be a focus of a16z’s upcoming crypto fund as it was a focus of the last iteration.
Case in point: one of the big investments of the first fund was the purchase of $15 million worth of MakerDAO’s governance token, MKR, in late 2018, when the project was barely off the ground and far below the adoption it has now.
A16z is also rumored to have purchased a quarter of a million of dollars worth of Synthetix Network tokens (SNX), indicated by a transaction of that sum of cryptocurrency to a16z’s Ethereum wallet. But the company has never verified that it did complete the investment.
Although DeFi did not receive a majority of the $350 million raised in the last fund, it could be a focus for a16z when it completes the second fund considering the precedent.
Crypto Funding is Frozen
The venture capital firm working on such a fund comes as funding and mergers and acquisition activity in the cryptocurrency and blockchain space has largely ground to a halt, reflective of the slowing global macro environment.
Per previous reports from Blockonomi, a recent report from PricewaterhouseCoopers, a “Big Four” professional services firm, indicated that M&A sunk 76% to $451 million worth of deals in 2019 from almost $1.9 billion the year prior.
Overall, the funds raised by companies working in the cryptocurrency industry fell 40% in 2019 from the 2018 highs, despite Bitcoin actually outperforming in 2019 rather than crashing as it did in 2018.
The slow funding rates have continued into 2020, compounded by an impending recession, potentially one of the worst ever according to the IMF.
Rob “Crypto Bobby” Paone, a founder of Proof of Talent, shared in a recent episode of his podcast that the number of crypto funding deals that took place in Q1 of 2020 was a mere 79, far below the 220 in Q1 of 2019 or 230 in Q1 of 2018.
The launch of a16z’s crypto fund could rapidly change that. But, it seems that the fund remains hypothetical for the time being.