Axios Pro Rata

A green watering can with a dollar sign painted on it.
May 28, 2022

Gm! This weekend we're back in crypto-land, taking a look at VC funds and the chillier times ahead.

  • 🚨 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar.

Today's newsletter is 736 words, a 2½-minute read.

1 big thing: Small crypto VC funds unshaken by turmoil

Illustration: Aïda Amer/Axios

Andreessen Horowitz's announcement this week of its long-rumored $4.5 billion crypto fund is the latest in a slew of mega funds that closed in recent months. But some investors are sticking to small crypto-focused VC funds and say the funds are thriving.

Why it matters: With so many firms raising over $1 billion in one fell swoop, it's easy to believe that's the only way to win.

The big picture: In 2022 so far, five firms have announced that they've secured at least $1 billion in capital; three did so during 2020 and 2021.

What they're saying: “Our value prop: We’re a long-term structured vehicle fund and have lived through many cycles as it relates to crypto,” Archetype founder Ash Egan tells Axios about how the firm markets itself to entrepreneurs. Archetype recently raised $150 million for a new fund.

Between the lines: “Smaller, $25-$75 million funds can be more nimble than larger funds,” Hash3 Capital Fund general partner Hootan Rashidifard tells Axios. Just like in the rest of the venture market, larger funds need to deploy more capital at once.

  • That ability to write smaller checks also means they can be friendlier participants in so-called party rounds — something that’s particularly popular among crypto startups if they don’t want their eventual tokens to be concentrated among a few investors.
  • Also: “Even if [the large funds] did invest $250,000-$500,000, the founder might not get the same attention from that investor as from the smaller fund,” Rashidifard adds.

Yes, but: It's unclear how the fundraising environment for crypto VC funds will look in a year or two.

  • Many limited partners are feeling tapped out on their venture capital allocations, so emerging managers with smaller funds may not be at the top of all lists for the next cycle.

The bottom line: As in the rest of venture capital, the big funds grab all the attention. But there’s still plenty of room for smaller players who can convince top entrepreneurs to take their capital instead.

2. Gettin' busy during winter

Illustration of a calendar surrounded by geometric shapes
Illustration: Annelise Capossela/Axios

Crypto startups may be getting ready for a long period of low prices, but it's not all bad news for the industry.

Between the lines: Conventional wisdom is that during a so-called crypto winter, startup and project builders are... well, building. The hope is that lots of good, investable stuff will be born during the season.

Zooming in: As Electric Capital noted in its latest report, while growth in new developers increases when prices do, it holds steady even during bear markets.

Yes, but: Andreessen Horowitz itself noted recently that high crypto prices drive ideas, activity and ultimately innovation (read: startups) — so, what gives?

  • "We’ve seen a lot of fad chasing, trend chasing and FOMO investing," Archetype's Egan told Axios, addressing the boom in startups and funding during the recent historic crypto prices.
  • The bottom line: We may see the fluff and tourists go away, while serious entrepreneurs continue to start new projects and companies focus more on infrastructure and tools.

3. By the numbers: Crypto startup funding

Data: PitchBook; Chart: Erin Davis/Axios Visuals
Data: PitchBook; Chart: Erin Davis/Axios Visuals

The crypto market entered a "winter" back in 2018, but — as mentioned above — that didn't keep entrepreneurs from starting new projects and companies.

  • In fact, 2018 was a record year (at the time) in terms of startup financing.
  • Even 2019 still saw crypto startup financings as prices started to slowly pick back up.
  • Crypto-focused VC funds also saw an uptick in 2018, with 50 funds raising about $3.5 billion, and firms securing about the same amount in 2019, per Pitchbook data.

📚 Due Diligence

  • Crypto startups brace for a long bear (Axios)
  • Crypto startups: Private investment goes against the market flow (FT)
  • Bitcoin separates from other crypto in uncertain times (Axios)

🧩 Trivia

Pantera Capital was among the very first firms dedicated to investing in bitcoin and related startups — but that's not how it started.

  • Question: When was it founded, and what did it originally do? (Answer at the bottom.)

🧮 Final Numbers

Note: Pantera Blockchain Fund has not closed yet; Data: PitchBook, Axios; Chart: Jacque Schrag/Axios
  • This chart originally appeared earlier this week in the Axios Pro Fintech newsletter. Check it out!

🙏 Thanks for reading! See you on Tuesday for Pro Rata's weekday programming, and please ask your friends, colleagues and crypto believers to sign up.

Trivia: Pantera was founded in 2003, originally as a hedge fund.