Amid a market price collapse, one of crypto’s most influential venture capital firms is loading up.
Andreessen Horowitz’ crypto unit, known as a16z crypto, announced on Wednesday that is has raised $4.5 billion for its fourth fund. The firm plans to allocate $1.5 billion if it to seed investments in Web3, and $3 billion to more traditional startup investments.
The fund, the largest individual crypto fund raised in venture capital so far, brings its total funds raised to more than $7.6 billion; its close confirms a January report from the Financial Times that accurately described the firm’s fund size and plans. Leading the fund, as expected, are partners Chris Dixon, Sriram Krishnan, Arianna Simpson and Ali Yahya.
In an interview, Simpson said the firm considered the fund an “expansion” that grew in size commensurate with a broadening focus area that’s gone from mostly 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’s latest fund comes at a challenging moment within the crypto industry. Following the downfall of stablecoin TerraUSD, $56 billion in value was lost between May 7 and May 12 alone in what Forbes has reported is the “fifth reset” in crypto’s history. Coinbase, a banner a16z crypto investment that helped propel Dixon to No. 1 on this year’s Midas List of the world’s top venture capitalists, is trading down more than 75% for the year to date. With its market cap trimmed to about $14 billion, the company recently released a TV ad mocking past declarations of crypto’s demise. (An ad saying, essentially, “we’re still here,” is probably not how the company wanted to celebrate its tenth birthday).
Against that backdrop and the public skepticism, and concern for retail investors, that comes with it, a16z crypto’s plan is to stay the course. In an interview with Forbes earlier this year, Dixon called the next three years potentially “the golden period” of crypto; in a blog post published on Wednesday, he doubled down on that statement, proclaiming the current moment “the golden era of Web3.”
The post doesn’t address crypto’s current bearish turn. Simpson, for her part, says that she and her partners have invested in crypto long enough to have weathered several such cycles. When prices deflate and speculation diminishes those left behind tend to be more long-term technologists interested in building lasting technology, she argues. (It’s a popular position with crypto VCs, 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 is, where are the builders, and the builders are continuing to come into Web3 at greater numbers than ever.”
Such an argument fits a VC 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 precarious line, arguing that crypto’s push into the mainstream and its popularization are important steps in its adoption, on the one hand; crashes, meanwhile wipe 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 firm 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 cofounded 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 firm will bring in more investors, Simpson says “we’ve been hiring and will continue to hire.”
In April, Forbes reported that the a16z crypto 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 own 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.