Apr 13, 2022 - Economy

Crypto investing gave Sequoia partner new levers

Photo illustration of Shaun Maguire and abstract shapes.

Photo illustration: Shoshana Gordon/Axios. Photo: courtesy of Sequoia Capital

Cryptocurrency changed the game for some investors. Now they can actively support portfolio companies on the blockhains where their projects run.

"It's just fun to work on something so different, where there's all these new levers," Shaun Maguire, of Sequoia, a venerable venture fund that dates back to 1972, tells Axios.

  • Why it matters: As investors, Sequoia has one of the best track records out there. It cautiously began making moves into crypto in 2015, but, when it went all in with a sector-specific fund, that was a signal for all investors.

Sequoia backed Web2 companies like Apple and Nvidia long ago. It's also backed Airbnb, LinkedIn, PayPal and many others that are now household names.

  • In February, it announced a $500 to $600 million sub-fund that will focus exclusively on crypto, specifically making moves in liquid tokens (as opposed to company equity, the usual coin-of-the-realm in venture.)

Details: So far, some of Sequoia's crypto sector picks have included infrastructure firm LayerZero, the exchange FTX, NFT marketplace Magic Eden, blockchain scaling company Starkware and others.

  • Sequoia also backed the controversial social network, BitClout, and its new iteration, DeSo (for "decentralized social").

What they're saying: "I personally believe crypto is going to have a 100 trillion market cap in 30 years," Maguire said.

The intrigue: Investors like to say that they get brought into a cap table to add more value than money, but it's been pretty soft stuff (media attention, introductions, advice). In crypto, investors can be much more active, particularly with temporary cash infusions.

  • Most funds have a lot of capital that they haven't deployed yet. There's a lot they can do with that on the blockchain that helps portfolio companies.
  • One big lift: funds can temporarily dump liquidity (basically, dollars) into early decentralized finance applications. A lot of these things don't work unless people have put in some money for the apps to make use of.
  • Investors don't have to buy in though. They can just go in for a while and take it out once the market gets going. Usually, they make some nice returns for their trouble (unless the app blows up, which totally happens).
  • Crypto investors can also take part in on-chain voting, mining and trading.

Many new crypto projects only let users vote on decisions if they have locked up their tokens so that they can't be sold for a time.

  • A longer lock equals a stronger vote. Maguire said Sequoia's crypto fund gives the market confidence in a project by staking with the longest possible lock time.

State of play: Sequoia reportedly has $80.7 billion assets under management, according to the Wall Street Journal, which gives it a different risk profile than the average person would have. Maguire acknowledges that the time is not right for most people to use blockchain products yet.

  • "It's really early and even the infrastructure layer is pretty broken right now," Maguire said. "We're in the pre-application era. A lot of what we see is people pattern matching to the internet and other cycles."

In other words, a lot of projects now are building crypto-versions of companies we all know, but the real value in a new technology doesn't usually get unlocked until creative people find all new use cases (like they did with mobile phones when cars could be summoned to a users exact location).

Bottom line: Maguire appreciates the skepticism the general public has about crypto, but he also says the true believers are driven by their own skepticism.

"I have backpacked to over 95 countries," Maguire said. "If you are not American or from a European nation, the value prop of crypto is absolutely, abundantly clear."

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