Amid the crypto market collapse, one of the digital currency’s most influential Venture capital firms (a16z) is loading up.
Andreessen Horowitz’s cryptocurrency venture, also known as a16z crypto, announced on Wednesday that it has raised $4.5 billion for its fourth web 3.0 fund to take advantage of the market collapse. The firm plans to invest $1.5 billion of the funds to seed investments in Web3.0, and $3 billion intraditional startup investments.
The fourth fund, which is the largest cryptocurrency fundraised in venture capital space so far, brings its total funds invested to more than $7.6 billion; confirms a January report from the Financial Times that precisely described the firm’s fund size and plans. The fund is led by the partners Chris Dixon, Sriram Krishnan, Arianna Simpson and Ali Yahya.
In an interview, Arianna Simpson said that the VC firm considered the fund an “expansion” that increased in size commensurate with the focus area that’s gone from mainly infrastructure and blockchain businesses to a much wider mix, especially in Web3 and consumer-facing companies. “What the overall category encompasses is continuing to grow, and as a result, our fund is larger because we really want to be able to support that entire ecosystem,” she says.
A16z crypto currency’s latest fund comes at a challenging moment within the crypto market. Following the downfall of stablecoin TerraUSD (UST), investors lost $56 billion between May 7 and May 12 alone in what Forbes has reported is the “fifth reset” in crypto currency’s history. Coinbase exchange platform, a banner a16z crypto investment that helped propel Dixon to No. 1 on this year’s Midas List of the world’s top venture capitalist firms, is trading at 75% less than what it was a year ago. With its market capitalizationdropping to about $14 billion, the company recently released a TV advertisement mocking past declarations of crypto currency’s demise. (An ad saying, “We’re still here,” is probably not the way the firm wished to celebrate its tenth birthday).
Against that backdrop and the public fear, and concern for retail investors, that comes with it, a16z crypto plans to stay the course. In an interview with Forbes earlier this year, Chris Dixon called the next three years potentially “the golden period” of digital currency; in a blog post published on Wednesday, he doubled down on that statement, proclaiming the current moment is “the golden era of Web3.”
The post doesn’t comment on crypto currency’s current downwards turn. Arianna Simpson, for her part, says that she and her partners have invested in cryptocurrencies long enough to have weathered several such bearish cycles. When prices deflate and speculation diminishes, those left tend to be more long-term technology enthusiasts and believers interested in building lasting and impactful technology, she argues. (It’s a popular position with crypto venture capitalists, one argued also, for example by rival Paradigm’s partners in 2020.) “The cycles are part of the process,” Simpson says. “The critical piece that matters are, where are the builders and innovators, and those are continuing to come into Web3 at greater numbers than ever.”
Such an argument fits a venture capitalist firm’s strategy—it can invest at lower prices in companies, given its time horizons and capacity for risk—but tends to gloss over the individuals who opened crypto wallets in recent months, perhaps, say, after the blitz of crypto ads run during the Super Bowl, and who now might be absorbing short-term, painful losses. (Investors in TerraUSD and its related coin, Luna, are one obvious recent example.) Here, a firm like a16z crypto attempts to walk a dangerous line, arguing that crypto currency’s push into the mainstream and its popularization are important steps in its adoption, on the one hand; crashes, meanwhile wiping out “short-term focus” people who aren’t helping build crypto’s long-term future.
“There are tradeoffs to the various phases of the cycle,” Simpson says. The company has continued to announce investments in recent weeks, including an ecosystem fund for Flow, the blockchain behind NBA Top Shot, a cross-blockchain connector company called LayerZero Labs, and a tokenized carbon credit business co-founded by former WeWork CEO Adam Neumann.
With the funds, a16z crypto plans to hire professionals focused on research and engineering, security, talent and go-to-market functions such as marketing and partnerships to support its portfolio; asked if the VC firm will bring in more investors, Simpson says, “We’ve been hiring and will continue to hire.”
In April, Forbes reported that the a16z team was telling investors in the new fund that they planned to eventually fold their unit back into the firm’s central funds, reflecting crypto’s wider influence across categories. (Consumer and gaming investors at the firm, for example, currently have their funds but collaborate with a16z crypto.) The firm declined to comment at the time.
Simpson says now that the firm continues to believe that crypto and Web3 components will be “a big part of most, if not all, businesses over a long enough horizon.” But asked point-blank if the new a16z crypto fund will be the last of its kind, Simpson demurs. “Too soon to say,” she says.