1 Overview
With the rapid development of blockchain technology, the cryptocurrency and decentralized finance industries are growing stronger and stronger, driving the rapid growth of the crypto venture capital industry. Crypto Venture Capital (Crypto VC) is a type of venture capital company that focuses on investing in cryptocurrency and blockchain. They provide funding and resource support to start-ups and projects to promote the development and innovation of blockchain technology. Crypto VC is gradually becoming an important force in the venture capital field.
This article will discuss the crypto venture capital industry, focusing on analyzing six top crypto VC firms, including a16z, Multicoin Capital, Paradigm, Mechanism Capital, Polychain, and Variant Fund, to explore the following aspects of their role in the industry:
Overview of each VC company: This section will introduce the basic situation of the six crypto VCs, including the company's founding background, team composition, investment strategy, etc., so that readers can have an overall understanding of each company;
Historical investment analysis: This section will conduct a detailed review and analysis of the historical investment projects of each crypto VC, including data on investment areas, investment rounds, investment amounts, etc., in order to reveal the investment focus and trends of each company;
Investment Case Analysis: This section will select typical investment cases of various crypto VCs, deeply analyze the logic and values behind the investment, and demonstrate the investment strength and vision of each company in different fields;
Future Development Forecast: This section will combine the development trend of the global crypto market to predict the future development direction of the six crypto VCs, propose possible market opportunities and challenges, and provide reference for investors and industry practitioners.
This article hopes to give readers a more detailed understanding of the crypto VC industry through the detailed elaboration of the above content, and provide some valuable insights for investors and market observers.
(The analysis institutions selected in this article do not represent any ranking, but only provide a reference for the analysis capital framework and template for the article. Other capitals can refer to the above template for analysis. In the future, we will continue to pay attention to the changes in investment strategies and strategic development layout of various VCs in the industry.)
2. Overall comparative analysis of the crypto VC market
As an emerging and rapidly developing field, the crypto investment industry has experienced rapid growth and change in the past few years. Overall, the industry is in good health, with continued growth in investment scale and innovative activities, providing strong support for the development and innovation of the crypto field.
Among the top 50 cryptocurrency VC firms in the world, the San Francisco Bay Area holds a 45.2% market share by capital under management, with over $26B under management, nearly as much as all other cities in the world combined.
When comparing the data from the two bear markets, we can see that the venture capital invested in crypto companies has increased 3.1 times compared to the same period four years ago (January to February 2019) - in this period in 2019, the investment amount was $471 million, while this year's data reached $1.45 billion. In other words, even during the deep bear period, venture capital firms still invested more than $25 million in total equity in crypto companies every working day.
Comparing the investment behaviors of the six crypto VCs discussed in this article, compared with the whole year of 2019, the six institutions made a total of 36 investments throughout the year, and 49 investments were completed in the first half of 2023, which also confirms the above facts that the overall crypto ecosystem is improving.
Except for Paradigm and Polychain Capital, the remaining four funds saw their investment peaks in 2022. Among them, a16z was one of the most active investors, with 73 investments. Multicoin Capital, Mechanism Capital and Variant Fund also achieved high investment times in 2022.
The investment activities of these investment companies in 2022 are mainly concentrated in the fields of DeFi and infrastructure. In comparison, a16z, Paradigm and Variant Fund will pay more attention to the field of NFT. In addition, a16z and Mechanism Capital have also invested in many game projects, while Paradigm is more focused on the field of CeFi. The investment scope and direction of these investment companies are relatively broad, covering multiple fields and sub-fields in the crypto field, and building a healthier crypto ecosystem on this basis.
The investment strategies of these investment companies are also relatively flexible. While investing in start-ups, they also invest in mature crypto companies or cooperate with other investment companies for joint investment. This diversified investment strategy enables them to better grasp market opportunities and risks and achieve better investment returns.
It can be noted that a16z and Paradigm have a relatively high proportion of lead investments, and most of their investment projects have a financing scale of more than $50 million. At the same time, Mechanism Capital and Variant Fund may be more involved in the investment of early-stage projects, such as seed rounds and angel rounds, so the investment amount is relatively low and the investment is more flexible.
The difference in this investment strategy is mainly due to the investment styles and advantages of different crypto VC companies. Large VC companies such as a16z, Paradigm and Polychain usually have richer resources and experience, can better support mature crypto projects, and are more willing to take higher investment risks.
Compared to large VC companies, smaller funds usually have less investment funds and resources, so they tend to focus more on the technology and innovation of projects rather than scale and market share. These funds are also more willing to take higher investment risks because they believe that their vision and judgment can discover and cultivate projects with real potential.
In addition, since smaller funds are usually founded by experienced investors or industry experts, they are more likely to choose investment projects based on their personal preferences and experience. These experienced investors usually have a deep understanding and insight into the crypto market and are able to discover and invest in projects that large VC companies may overlook.
It is worth noting that this is just a typical investment strategy of crypto VC companies, and it does not mean that they will remain unchanged. As the crypto market continues to develop and change, the investment strategies of different crypto VC companies will also be constantly adjusted and optimized to better adapt to market needs and changes.
3. Detailed introduction of the six top crypto VCs
3.1 Andreessen Horowitz (a16z)
3.1.1 Basic Introduction
a16z is a venture capital firm headquartered in Silicon Valley, USA. It was founded in 2009. The full name of the company is Andreessen Horowitz, co-founded by Marc Andreessen and Ben Horowitz.
a16z is characterized by its wide range of investments and innovative investment methods. It is also committed to providing strategic guidance and resource support to invested companies to help them achieve long-term development and success. The company's investment portfolio includes many well-known technology companies, such as Airbnb, Facebook, Slack, Lyft, PagerDuty, Pinterest, etc.
a16z is also one of the important investment institutions in the crypto field. It began investing in Bitcoin and blockchain technology as early as 2013. Its early investments in the crypto industry include: Coinbase, Ripple, BitGo and 21 Inc.
In recent years, a16z has also continued to pay attention to the development and innovation of the crypto field, and actively explored new investment opportunities and strategies on this basis. It has successively invested in many other crypto projects, such as Uniswap, Compound, dYdX, Solana, Celo, Dfinity, Flow, Arweave, Near, etc. These projects are innovating and breaking through in different directions, providing new ideas and possibilities for the development of the entire crypto field.
In addition to investment activities, a16z also plays an important role in strategic guidance and resource support in the crypto field. The company has set up a crypto fund and hired a group of professionals with rich experience and knowledge in the crypto field to provide all-round help and support to the invested companies. In addition, the company also regularly publishes research reports and analyses on the crypto field, providing valuable reference and guidance for the entire industry.
3.1.2 Comparison of investment projects over the years
In the past two years, after entering the crypto bear market, the number of investments made by many investment institutions has declined significantly, and a16z is no exception.
In the early stages of entering the crypto market, a16z mainly invested in areas such as infrastructure, exchanges, and wallets.
As early as 2013, a16z led the B round of financing for Coinbase, the leading CeFi institution in the market today, and continued to participate in the investment in 2018. Coinbase has now become one of the world's largest cryptocurrency trading platforms, with millions of users and billions of dollars in trading volume. In addition, a16z has invested in many other blockchain and cryptocurrency projects, such as the DeFi project dYdX in 2017. a16z organized and led its seed round, and made additional investments in 2018. In the new round of A-leading investment, it successfully raised $10M for it, and in the 2021 B round of financing, we can still see a16z participating in the figure. In addition, a16z also led the investment in MakerDAO in 2017, led the investment in the crypto lending project Compound for two consecutive years in 2018 and 2019, and led three rounds of Celo projects for three consecutive years in 2018, 2019 and 2020.
As the crypto market developed, a16z began to increase the frequency and amount of investment in the crypto field in the second half of 2020 and 2021, and gradually shifted its attention to then-emerging fields such as DeFi and NFT.
Because it has always adhered to the model of discovering new projects and exploring new strategies in the crypto field and seeking transformation, it chose to adopt a token model investment strategy in Uniswap.
As a whale player in Uniswap, Andreessen Horowitz holds a total of 15 million UNI tokens and has a huge influence in every public vote of the project. Because of the custody setting of its tokens, it cannot participate in the heat check in the technical inspection, which means that the players who participate in the vote cannot know the voting results of a16z, and a spokesperson for a16z confirmed that the company plans to participate in any on-chain vote. Because it has such a huge influence in the project, its voting behavior has attracted much attention every time. Although there will be various voices in the market, this also reflects the influence and status of a16z in the encryption field, and also reminds the entire encryption community to remain vigilant and avoid any market manipulation.
The peak of a16z's annual investment occurred in 2022. In addition to continuing to focus on the gaming industry and increasing investment in infrastructure projects, a16z began to pay more attention to innovative Web3 projects and the NFT field. Relatively speaking, investment in the CeFi field has declined. In the first quarter of 2022, a16z took the lead in leading the seed round of Yuga Labs, enabling the project to successfully raise $450M in funds at a valuation of $4B, making it one of the projects with the highest financing amounts in the NFT and metaverse fields in recent years. In addition, it also participated in leading Opensea's A and B rounds of financing, establishing its position in the NFT trading market.
Investment projects in 2023
In addition to investing in infrastructure and gaming metaverse projects, a16z has also been keeping an eye on emerging fields, including the expanded applications of artificial intelligence, which is currently the hottest field, and identifying opportunities for investment.
From its latest two rounds of investment in Worldcoin and Gensyn, it can be clearly seen that its focus has shifted significantly. In addition to its regular focus on projects in the traditional crypto market, it tends to shift its attention to the field of AI.
Worldcoin
Worldcoin is a crypto project created by Sam Altman, founder of OpenAI. Since most people in the world cannot verify their identities digitally, Worldcoin's vision is to build the world's largest and fair digital identity and currency system. This will help everyone enter the global financial system. In addition to a16z, well-known investment institutions such as Coinbase, Multicoin Capital, and 1confirmation have participated in the investment. The founders of LinkedIn, SBF, Mirror, and multiple Ethereum projects, Polkadot, and the Web Foundation have all participated in the angel round of investment. The two rounds of financing totaled US$125 million, and it is currently seeking US$100 million in financing.
Revisit
Gensyn is a decentralized AI computing network that uses blockchain technology to verify that deep learning tasks have been completed correctly and trigger payments through tokens. The goal of this network is to provide more efficient, secure, and reliable computing resources for training AI models.
The reason a16z invested in Gensyn is because they believe that this project has great potential and can solve some existing problems in the field of artificial intelligence. For example, traditional cloud computing models usually require a lot of time and resources to complete AI training, while Gensyn takes advantage of blockchain technology to enable computing resources to be efficiently allocated and utilized. Gensyn also has the advantage of decentralization, which means that its computing network is not affected by single points of failure and can provide higher security and reliability. These factors make Gensyn a very promising project and also meet a16z's criteria when looking for investment opportunities.
3.1.3 Future investment directions
Compared with other VCs, a16z has continued to pay attention to the development of the crypto market in the bear market and actively invested in this field. They announced a new cryptocurrency fund in 2022 to support emerging blockchain projects and cryptocurrency innovations. $1.5 billion in the fund will be dedicated to seed investments in Web3 startups.
The fund will provide startups with funding and resources to help them build a sustainable crypto ecosystem. In addition to financial support, a16z will also provide these companies with business advice, technical support, and marketing assistance.
a16z's past investments in the cryptocurrency field have covered various aspects, including decentralized finance, digital identity verification, cryptocurrency exchanges, and mining. These investments have not only promoted the development of cryptocurrency and blockchain technology, but also brought considerable returns to a16z itself. Artificial intelligence is one of the hottest technology fields at present, and it has a wide range of applications in many fields such as medicine, finance, and manufacturing. By combining blockchain technology and artificial intelligence technology, more innovative applications and business models can be created, which also brings more investment opportunities to the crypto VC industry.
a16z's investments in AI also include other projects such as Suki.AI, which provides AI solutions for enterprises, and Freenome, which uses machine learning technology to improve healthcare efficiency.
In general, a16z has completed 13 investments this year, which shows that they have been keeping an eye on emerging technologies and trends and looking for potential projects to invest in. They believe that these areas will become important trends in the future and will continue to contribute to the success of these areas. a16z's investment and behavior in the crypto field has not only brought rich returns to the company itself, but also injected new vitality and momentum into the development of the entire industry. In the future, a16z will continue to pay attention to the development and innovation of the crypto field, actively explore new opportunities and strategies, and contribute to the long-term development of the entire industry.
3.2 Multicoin Capital
3.2.1 Basic Introduction
Multicoin Capital was founded in 2017 by three founding partners and focuses on researching and investing in blockchain technology, cryptocurrencies and decentralized applications, as well as emerging technologies and trends related thereto.
Multicoin Capital's investment strategy is based on in-depth industry research and analysis, as well as keen insights into emerging technologies and trends. They believe that the cryptocurrency and blockchain sectors are long-term investment opportunities. Therefore, the company will attach importance to long-term investment strategies, holding and supporting companies and projects that are leading in technology and the market.
In addition, they will also pay attention to the values and social impact of investment projects. The company will give priority to projects with social significance and values, and avoid investing in projects that may have a negative impact on society and the environment. At the same time, the company also pays great attention to the quality and ability of the team and management to ensure the success of investment projects.
Multicoin Capital's investment portfolio is very broad, covering various fields, including infrastructure, applications, protocols, decentralized finance, games, artificial intelligence, etc., but most of the investment is still concentrated in infrastructure and DeFi projects. Some of their well-known investment projects include Solana, The Graph, Portals, Arweave, StarkWare, etc.
In addition to investing, the agency is also committed to providing investors with the latest information and insights on cryptocurrencies and blockchain technology, as well as advice and guidance on investing and trading. Multicoin Capital regularly publishes reports and articles covering a variety of topics, including market trends, technological innovations, investment strategies, etc., to give investors some effective advice and guidance.
3.2.2 Comparison of investment projects over the years
In the early years of joining the cryptocurrency industry, Multicoin Capital focused on infrastructure investments. They participated in Solana's seed round in 2018 and led Solana's Series A in 2019, a project aimed at improving blockchain scalability and user-friendliness. In addition, Multicoin Capital also participated in StarkWare's Series A, a project focused on improving blockchain privacy and scalability. In 2019, they also led the seed round of The Graph, a protocol for distributed network querying and indexing.
Multicoin Capital has demonstrated a high degree of professionalism and acumen in infrastructure investment. They see future potential in these projects and inject capital into them to support their development. These investments have not only earned Multicoin Capital high returns, but also made important contributions to the development of the entire cryptocurrency market.
Over time, Multicoin Capital's investment direction has gradually expanded and upgraded, shifting from infrastructure investment to broader areas such as decentralized finance, artificial intelligence, games, and Web3. Whether in infrastructure investment or investment in other fields, Multicoin Capital has always maintained a high degree of professionalism and insight, and has made important contributions to the development of the entire cryptocurrency market.
For example, since 2020, Multicoin Capital has increased its attention and investment in the DeFi field, investing 17 times in related fields in 2021 alone. These include Perpetual Protocol, Oxygen, Beta Finance, etc.
In addition to the DeFi sector, Multicoin Capital has also made some important investments in areas such as artificial intelligence, gaming, and Web3. For example, they have invested in projects such as Alethea AI, Portals, Metaplex, and Fractal.
In addition, the institution was once an investor in FTX and FTX US. Multicoin Capital did suffer losses after investing in FTX and the related Solana industry. Especially FTX, as one of the largest CEXs in the past and a key project that Multicoin Capital once paid attention to and invested in, the sudden explosion was unexpected by everyone.
Investment projects in 2023
In the first half of this year, Multicoin Capital invested in a total of 6 projects, mainly in infrastructure and Web 3 projects, of which four were lead investors, namely wallets, security solutions, DeFi (MEV) and DAO solutions. These projects are all applications based on blockchain technology, covering multiple fields such as cryptocurrency, DeFi, security, DAO, etc., with high technical content and market potential. Multicoin Capital's investment strategy in the crypto VC industry is also gradually taking shape.
TipLink
TipLink is a project co-led by Multicoin Capital and Sequoia Capital, with participation from Solana Ventures, Circle Ventures, Paxos, etc. As a lightweight wallet, TipLink aims to make digital asset transfers as easy as sending a link. The non-custodial wallet allows users to fully control their assets by connecting a Gmail account or Solana wallet. Users with cryptocurrency can create this wallet and send the link to anyone through any platform (text, discord, email, etc.). In this app, the link is the wallet.
TipLink is currently only available on the Solana network. TipLinks can generate and hold SOL, SPL tokens, NFTs, and SFTs. Once generated, new or native blockchain users can receive digital assets and fully control them through the link. Using TipLinks and Solana Pay, you can establish a direct relationship with your customers through peer-to-peer payments. No need to worry about transaction fees, frozen funds, or chargebacks.
3.2.3 Future investment directions
As the cryptocurrency market continues to develop and its application scenarios continue to expand, Multicoin Capital's investment direction is also changing. They began to pay more attention to the construction of the Web3 ecosystem, especially those projects that can improve efficiency, reduce costs, and enhance security. They also began to pay attention to projects in the fields of artificial intelligence and games, and made some important investments in these fields. Whether it is infrastructure investment or investment in other fields, Multicoin Capital has always maintained a high degree of sensitivity and insight, and has made important contributions to the development of the entire cryptocurrency ecosystem.
Although Multicoin Capital has indeed slowed down its investment in the crypto space this year, this does not mean that they have given up their attention and investment in this field. On the contrary, they continue to look for new investment opportunities and adjust their investment strategies and portfolios to reduce risks and obtain better returns on investment. For example, they have turned their attention back to the infrastructure field and started looking for Web3 projects that may have a greater impact on the entire industry. Multicoin Capital believes that Web3 is the future of the next generation of the Internet and will have a profound impact on the entire industry in the next decade. Therefore, they are actively looking for Web3 projects with potential and providing funding and support for these projects.
Of course, Multicoin Capital is likely to continue to focus on the infrastructure sector, as they believe that infrastructure projects will continue to have a profound impact on the entire industry in the next decade.
3.3 Paradigm
3.3.1 Basic Introduction
Paradigm was co-founded in 2018 by Coinbase co-founder Fred Ehrsam, former Sequoia Capital partner Matt Huang, and former Pantera Capital's Charles Noyes. Paradigm's mission is to contribute to the global promotion and popularization of cryptocurrency and blockchain technology.
The company's investment philosophy is long-term and strategic investment, that is, investing funds in projects with long-term potential and establishing close cooperative relationships with these projects to jointly promote the development of the entire industry.
Unlike other VCs, after investing in a project, Paradigm will actively participate in and support the construction of the community and ecosystem of cryptocurrency and blockchain technology, provide strategic guidance, technical support, business development and other support to the project, and help these projects achieve commercialization and sustainable development.
Paradigm has made many investments in infrastructure, DeFi, NFT and CeFi. The organization continues to pay attention to the development of various industries in the crypto field and is committed to providing technical financial support and operational assistance to new projects.
3.3.2 Comparison of investment projects over the years
After entering the crypto ecosystem, Paradigm focused on the infrastructure and DeFi fields. After leading StarkWare's Series A financing, it continued to lead its Series B and C financing, and continued to pay attention to its development. The same is true for Uniswap. Since leading Uniswap in 2019, it has been paying attention to the development of the project, and continued to participate in its subsequent two rounds of financing in 2020 and 2022. This is also one of Paradigm's successful cases.
In addition to these, Paradigm has also discovered and invested in a series of leading crypto ecosystem projects for a long time, such as Optimism, Cosmos, Argent, Reflexer, Yield Protocol and Axie Infinity, etc. The development of these projects fully demonstrates Paradigm's long-term investment philosophy and strategic investment strategy.
Since 2021, Paradigm has begun to increase its attention and investment in DeFi, NFT, CeFi and gaming, gradually expanding its investment scope in the crypto ecosystem. In addition to investment, Paradigm also actively participates in the construction and promotion of the blockchain ecosystem and provides corresponding assistance to these projects.
For example, in the CeFi field, Paradigm led Coinswitch's Series A financing and participated in Bitso's Series D financing in 2021. Coinswitch is currently the most popular cryptocurrency application in India, and Bitso is the largest cryptocurrency exchange in Latin America. These are the first two cryptocurrency exchange financings that Paradigm has participated in since entering the crypto ecosystem. In the same year, Paradigm also participated in some NFT, DeFi and gaming projects, such as Opyn, Synthetix, dYdX, Zora, Royal and Axie Infinity.
Paradigm continues to be optimistic about infrastructure and NFT-related fields in 2022, and has begun to explore new Web3 projects. They hope to explore new ways of playing for the entire crypto ecosystem and continue to build. First of all, in the field of NFT, they continued to invest in projects such as Opensea, Magic Eden and Limit Break, which are institutions and companies with important positions and influence in the NFT ecosystem. They also invested in two crypto wallet projects, Argent and Phantom, which are leading in the storage and management of cryptocurrencies. In addition, in order to give more new projects opportunities, they have also invested in many new Web3 innovative ideas. For example, Jambo is an education-related industry. These new projects may play an important role in promoting the application of cryptocurrencies and blockchain technology in the future.
Investment projects in 2023
In the first half of 2023, Paradigm only participated in and led two projects - security solution Code4rena and infrastructure platform Conduit. In the bear market of the cryptocurrency market, Paradigm changed its previous diversified investment layout and adopted a more stable investment strategy. They chose to focus on the infrastructure field in the case of a sluggish market to reduce the error rate and choose to make small investments. The current financing amounts of these two projects are 6 million and 7 million US dollars respectively.
Code4rena
Code4rena is a web3 security auditing platform. Security audit competitions differ from traditional audits and bug bounties in that they provide broader coverage for protocols and guarantee payouts for participants. Participants in the arena include: Guardians, who protect the DeFi ecosystem from threats by auditing code; Sponsors, who create bounty pools to attract Wardens to audit their projects; Judges who decide the severity, validity, and quality of the findings and rate Wardens’ performance. As a competitive auditing platform, Code4rena can find more high-severity vulnerabilities faster than any other auditing method.
Built by a leading team of industry experts, Code4rena aims to protect projects and communities by providing access to the best security researchers and smart contract experts in the world.
Conduit
Conduit is a crypto-native infrastructure platform designed to support and accelerate builders in the crypto space. Its first product enables teams to scale their applications by around 100x, allowing them to launch production-grade rollups built on the OP Stack in a fraction of the time. Infrastructure professionals manage, launch, and scale application-specific rollups on Conduit so that teams can focus on creating products that users love. DeFi protocols, gaming companies, NFT platforms, and other on-chain providers can use Conduit to quickly and easily scale their applications, provide a better user experience, and unlock new use cases that were previously impossible due to network congestion.
3.3.3 Future investment directions
Paradigm's timely adjustment of its investment strategy shows its keen insight and response capabilities to the market situation, as well as its basic judgment of the current ecology. Despite the sluggish market, the development of the infrastructure field is still one of the important factors in maintaining the stability and healthy development of the crypto ecosystem, and it is also a reflection of Paradigm's long-term investment philosophy.
In the future, Paradigm may also make layouts in new fields to find new investment opportunities and promote the development of the entire crypto ecosystem. For example, the currently hotly debated artificial intelligence (AI) related industries, in which projects that integrate blockchain technology and artificial intelligence technology are likely to become the focus of Paradigm's attention. In the past few years, the application of artificial intelligence technology in various industries has become a trend. With the continuous development and application of blockchain technology, the integration of artificial intelligence and blockchain technology has also become a new research hotspot and investment direction. For example, some blockchain projects are exploring how to use artificial intelligence technology to improve the efficiency and security of blockchain systems, and how to apply blockchain technology to the field of artificial intelligence.
Paradigm likes to make long-term investments and innovative project discoveries. The artificial intelligence sector is in the early stages of development, which is in line with Paradigm's investment philosophy. It will also make it easier for them to participate in the construction of project communities and ecosystems in the future and provide timely assistance.
Paradigm may look for opportunities in these emerging areas and provide technical support, business development and strategic guidance to these projects to help them achieve commercialization and sustainable development. In this way, Paradigm may further promote the development of the crypto ecosystem and gain more returns on future investments.
3.4 Mechanism Capital
3.4.1 Basic Introduction
Mechanism Capital is an investment company focused on cryptocurrency and blockchain technology, founded in 2018. As an emerging VC, Mechanism Capital is more flexible and innovative, and mainly focuses on small-amount financing. They not only focus on the quality and growth of investment projects, but also pay attention to the overall development of the blockchain ecosystem, actively promoting innovation and development in the industry.
The company stated on its official website that although it is interested in all aspects of the crypto ecosystem, its main focus in the early stages of investment is still on DeFi and infrastructure. In the years after the company's operations stabilized, it gradually expanded its investment portfolio to games and NFTs. For example, it raised $100 million in early 2022 to establish a game fund for more comprehensive track investment and layout, which can be intuitively reflected in its investment layout over the years. They hope to help support the construction of new financial systems and applications on public chains, and through their own participation, enhance the industry's understanding of crypto asset value acquisition, incentives, and mechanism design.
Its team members have strong technical backgrounds and rich industry experience. They are committed to contributing to the development and innovation of the blockchain ecosystem by investing in and supporting promising projects to help them achieve commercialization and sustainable development.
One of the founders, Andrew Kang, worked as an investment director at Bitcoin investment company Ledger Capital, responsible for the management and strategy of blockchain and cryptocurrency portfolios, and is also an advisor and investor in multiple cryptocurrency projects. Another founder, Vance Spencer, has worked at several well-known financial institutions such as Goldman Sachs and JPMorgan Chase, has a deep financial and investment background, and is also the co-founder of blockchain investment company Framework Ventures.
Mechanism Capital said they are less influenced by external investors, so they have the flexibility to invest in some non-traditional project ideas and have the ability to continue to invest financial and human capital to support the ecosystem from the first day after investment.
3.4.2 Comparison of investment projects over the years
Mechanism Capital prefers small investments, and this investment style began to emerge after they first entered the crypto market in 2020. Throughout 2020, SifChain's seed round of financing was the highest among the financing projects they participated in, with a total financing of US$3.5 million, while the financing amounts of other projects were between US$1.2 million and US$3.1 million. Although there were many large-scale financing projects in the market during the same period, Mechanism Capital did not participate in the financing of these projects. They prefer to use this small investment method to spread the risk across multiple projects and fields, and increase the investment amount when necessary.
In 2021, Mechanism Capital began to focus its investment on DeFi projects, which is consistent with what they claimed on their official website. That year, they invested in 15 DeFi projects, most of which were financed by participating in the investment. Among these projects, the asset management platform Set Protocol received the highest amount of financing, reaching 14 million US dollars, followed by the cross-chain aggregator project XY Finance, which received 12 million US dollars in financing. In addition, infrastructure projects are also favored by Mechanism Capital. A total of 10 infrastructure projects received financing throughout the year, including XDEFI's A round lead, Nameless and Biconomy's lead investment, and multiple participation projects Burnt. These investment behaviors show that Mechanism Capital is gradually determining its investment direction and looking for potential projects to invest in.
In 2022, in addition to continuing to focus on the DeFi field, the field with the largest number of projects invested by Mechanism Capital is gaming projects. That year, they invested in a total of 8 game projects, including the MMORPG game Tatsumeeko that can be played on Discord, the metaverse game MetaverseGo, the MMO strategy game Heroes of Mavia that makes money while playing, and the AAA first-person shooter game SHRAPNEL. In addition, they also participated in the NFT project UpShot twice and led the strategic round of financing for reNFT, obtaining US$5 million in financing. In terms of infrastructure, they participated in a layer protocol NEAR Protocol, which is also the project with the highest financing since Mechanism Capital entered the crypto ecosystem. In the field of DeFi, they participated in the seed round of financing for the lending protocol Morpho, and participated in the stablecoin protocol Hubble Protocol three times in a row. Hubble Protocol is a decentralized finance (DeFi) protocol built on Solana. Its core product is USDH, a decentralized stablecoin that can be used to borrow and lend against users’ crypto assets.
Investment projects in 2023
In the first half of this year, Mechanism Capital invested in four projects, two of which were in the gaming field, and the rest were related to DeFi and NFT. The project with the highest financing was the Metaverse project Avalon led by Mechanism Capital, which raised $13 million in a round of financing, and the remaining projects raised between $1.5 million and $5.5 million.
Avalon
Avalon, an Orlando, Florida-based company founded by leaders behind EverQuest, Call of Duty, Diablo, God of War, Assassin's Creed, and Elden Ring, is building a gaming platform designed to create an interoperable universe using metaverse technology.
Avalon’s gaming platform will use technologies such as game engines and blockchain technology to build a virtual universe. Although the company does not call its platform a “metaverse,” they imagine that in the future people will collaborate using tools that can easily build worlds and experience these dreams, and put these experiences together to create something like a virtual universe, CEO Sean Pinnock said in an interview with GamesBeat.
Avalon's goal is to change the digital world and ensure that these changes are beneficial to both creators and players. Pinnock said that engagement is driven by games, creativity and human connection, which are key elements that are severely lacking in most self-proclaimed virtual worlds. Therefore, Avalon hopes to create a more realistic and interactive virtual universe by integrating technology and building virtual worlds from games.
Mechanism Capital's investment in the metaverse game platform Avalon may be based on its optimism about the prospects of the metaverse game market, its recognition of Avalon's leaders and team members, and its understanding and cognition of the application of blockchain technology.
3.4.3 Future investment directions
According to the official website, Mechanism Capital may continue to focus on DeFi and gaming in the future. The institution has relatively rich experience and in-depth understanding in this field. The DeFi field is one of the most popular fields in the cryptocurrency market, with a lot of innovation and opportunities, and can provide users with more secure, transparent and open financial services. At the same time, it is also one of the fields with the largest number of daily participants and the most stable user base in the crypto ecosystem. Mechanism Capital may continue to invest in projects that can provide innovative solutions in the DeFi field, such as decentralized lending, prediction markets, insurance protocols, etc., which is also their original intention to establish the fund at the latest. The institution has also established a special fund for the gaming field to prepare for subsequent investments.
In addition, considering that both investors have financial backgrounds, Mechanism Capital may continue to focus on projects that can combine traditional finance and the cryptocurrency market. These projects can bring better efficiency and transparency to the traditional financial industry, while also bringing more opportunities and liquidity to the cryptocurrency market.
In addition to the DeFi field and financial-related projects, Mechanism Capital has also been paying attention to emerging fields with potential, such as blockchain infrastructure, DAO, Web3, etc. Due to the flexibility of its investment funds, Mechanism Capital is able to invest more flexibly in these emerging fields.
In general, Mechanism Capital will continue to focus on projects and fields with potential in the cryptocurrency market, including DeFi, financial-related projects, blockchain infrastructure, DAO, Web3, etc. Regardless of the field, Mechanism Capital will provide financial and technical support for these projects, and help them achieve better development by investing in human capital and actively participating in ecological governance.
3.5 Polychain Capital
3.5.1 Basic Introduction
Polychain Capital is a cryptocurrency and blockchain technology venture capital firm founded in 2016 and headquartered in San Francisco, USA. The company's founder is former Coinbase engineer Olaf Carlson-Wee, who is also one of the well-known figures in the cryptocurrency field.
Polychain Capital's investment focus is on projects in the field of cryptocurrency and blockchain technology, including infrastructure, protocols, applications, ecosystems, etc., such as Avalanche, Arbitrum, Uniswap, Coinbase, Connext, SPACE ID, etc.
Polychain Capital's investment philosophy tends to be early-stage investment and venture capital. Most of the projects they participate in have large financing amounts. They often invest in the project start-up or early stages to obtain more generous returns. At the same time, early investment can also help them better understand the project and establish a close cooperative relationship with the project. In addition to high returns, high-risk investments also have the philosophy of discovering projects that are unique, practical and innovative. They believe in their investment vision and firmly believe that these projects have great development potential.
In addition to investment, Polychain Capital is also actively involved in the construction and promotion of the blockchain ecosystem. They provide technical support, business development, strategic guidance and other aspects to these projects to help them achieve better commercialization and sustainable development. They are also actively involved in the construction of the blockchain community and industry, supporting and promoting the application and innovation of blockchain technology.
3.5.2 Comparison of investment projects over the years
Since its establishment, Polychain Capital has shown a clear preference for investing in infrastructure and DeFi, with most of its investment going into these two areas. Polychain Capital's investment projects in infrastructure include blockchain operating systems, distributed storage, cross-chain protocols, etc. These projects are key projects that provide support and infrastructure for the entire cryptocurrency market. At the same time, the projects invested in the field are also very outstanding, including decentralized exchanges, stablecoin protocols, lending protocols, etc. These projects can provide users with more secure, transparent and open financial services.
As early as 2017, Polychain Capital led the investment in MakerDAO, the current leading stablecoin protocol project, and the decentralized exchange dYdX, and participated in the cross-chain protocol Polkadot and the decentralized trading infrastructure project 0x.
In 2018 and 2019, Polychain Capital still invested most of its funds in the infrastructure field, investing in a series of projects such as Avalanche, Celo, Nervos Network and Dfinity. In addition, it also participated in Coinbase's E round of financing.
In 2020, Polychain Capital did not accelerate its investment process, but unlike its previous investment tendencies, due to the rise of decentralized finance, the number of DeFi projects invested by the institution this year accounted for 45% of the total for the whole year, followed by the CeFi field. Investment in infrastructure projects was suspended, and only three projects received financing from the institution throughout the year.
In 2021 and 2022, the agency returned to its previous investment style, still paying the most attention to the infrastructure field, followed by the DeFi field. In terms of infrastructure, it has led investments in many projects such as Solana, Connext, Avalanche, Scroll, AltLayer, EigenLayer, Celestia, etc. Most of the investment projects are led by the agency, and of course, it has also participated in well-known projects such as Arbitrum, Evmos, Gauntlet, etc. In the field of DeFi, it is also the leader of excellent projects such as Uniswap.
Investment projects in 2023
From 2023 to the end of June, Polychain Capital has invested in 15 rounds, still maintaining its consistent style, investing mainly in infrastructure, 10 of which are lead investors, and mainly in seed rounds, A rounds and strategic rounds. However, unlike other investment institutions, Polychain Capital did not immediately turn to the AI field and its derivative projects, but still focused on traditional related fields of the industry, including blockchain (EigenLayer, Berachain), cross-chain communication protocols (Connext), decentralized finance, derivatives (Thetanuts Finance, Coral Finance), data privacy (Webb), etc.
Berachain
Berachain is an EVM Layer-1 blockchain built with the Cosmos SDK, focused on DeFi and EVM compatible, powered by Proof of Liquidity Consensus.
Berachain's development team realized that one of the common problems of the current L1 is liquidity, so they designed a Proof of Liquidity consensus to attract and retain assets. Users can stake whitelisted assets such as BTC, ETH, and stablecoins on the validator vault and receive a portion of the DeFi protocol revenue and BERA in return.
Berachain uses a three-token economic model, including BERA, BGT, and HONEY. BERA is Berachain's Gas token, a medium for pricing and execution. BGT is Berachain's governance token, which can vote on new whitelisted assets. HONEY is Berachain's USD stablecoin, used as a payment method for protocol revenue. This economic model, called "Tri-Token" by the development team, is designed to encourage long-term user use and maintain consistency in on-chain liquidity. Berachain's liquidity consensus proof and three-token economic model help provide faster transaction speeds, lower transaction costs, and instant finality, and bring rich liquidity to DeFi on Berachain.
Berachain completed a $42 million financing round at the end of April this year, led by Polychain Capital, with participation from Hack VC, dao5, Tribe Capital, Shima Capital, Robot Ventures, Goldentree Asset Management, and OKX Ventures.
3.5.3 Future investment directions
As an investment institution with a relatively large scale and a relatively stable investment strategy, Polychain Capital may make some fine-tuning in its investment direction in the crypto field in the future, but the overall investment strategy and direction may not change much, and it will still focus on infrastructure and DeFi fields.
Of course, for a better business model and future development, Polychain Capital may pay more attention to the early value and sustainability of a project, and will also look for projects with good business prospects and development models to ensure the return on investment.
The diversification of investment portfolios may be their next focus. Although Polychain Capital has made many successful investments in familiar fields, they also know that in a rapidly changing market, portfolio diversification is the key to maintaining competitiveness. Therefore, Polychain Capital may look for investment opportunities in other fields related to the cryptocurrency field, such as artificial intelligence, big data, and the Internet of Things.
Although Polychain Capital has not shown any particular interest in the field of artificial intelligence, the combination of artificial intelligence and blockchain technology is now a hotly-watched area, and almost all investment institutions will pay close attention to this track and invest in some promising projects. These projects may include artificial intelligence applications that use blockchain technology to protect data privacy, and IoT applications that use smart contracts to manage supply chains.
Big data analysis is also an important area, and some projects that use big data analysis to improve the efficiency and accuracy of cryptocurrency transactions are also promising. These projects may include using big data analysis to predict market trends and trading strategies, and using blockchain technology to protect data privacy and security.
In general, portfolio diversification is the key to staying competitive. Polychain Capital may pay more attention to investment opportunities in other areas related to the cryptocurrency field than before, while maintaining a prudent investment attitude, providing more options for portfolio diversification and risk control.
3.6 Variant Fund
3.6.1 Basic Introduction
Variant Fund is an early-stage cryptocurrency investment fund focused on investing in and supporting innovative cryptocurrency and blockchain projects.
The company was founded in 2020 by Jesse Walden and Li Jin, both of whom are veteran investors in the cryptocurrency and blockchain fields. Jesse Walden was an investment partner in a16z's first crypto fund, and later led the twelve-week accelerator "a16z Crypto Startup School" initiated by a16z crypto. It is understood that Variant's investments in projects such as Uniswap, Phantom, Mirror, Flashbots, and Foundation were all led by Jesse. Variant's other co-founder Li Jin also came from a16z, but belongs to the consumer investment team. The two founders do not have much intersection except in terms of Internet creators and online platforms. In 2020, Li left a16z and founded Atelier Ventures, a company dedicated to the passion economy, and invested in crypto projects such as the game union Yield Guild Games and the DAO platform Syndicate.
In July 2022, when the crypto market entered a cold winter, Variant Fund announced the launch of a fund with a capital scale of up to US$450 million. This is the third fund launched by Variant Fund since its establishment in 2020. From the US$22.5 million fund announced at its debut to the US$110 million early-stage fund launched in October of the following year, the size of each fund launched is more than 4 times that of the previous fund. The company's growth rate has attracted attention from the industry.
Variant believes that cryptocurrencies will become the foundation of a user-owned network where products and services will turn their users into owners. The focus of the investment team professionals it has deployed also indicates the vertical segments they focus on in the crypto industry.
In addition to investing, Variant Fund shares industry updates, trends and investment insights through the Variant Newsletter to help increase transparency and understanding of the industry.
3.6.2 Comparison of investment projects over the years
According to data from Variant Fund's official website, the institution has now invested in 54 crypto projects, with a small number of investment projects and a low lead investment ratio of around 18%. The investments are basically evenly distributed in infrastructure, DeFi, NFT and other fields. Among them are well-known projects in multiple vertical fields such as Aptos, Foundation, Polygon, Mirror, Phantom, Uniswap and Magic Eden.
In 2020, the newly established Variant Fund immediately participated in Uniswap's Series A financing, and in 2022, it participated in Uniswap's Series B financing, demonstrating the institution's keen insight and investment vision for high-quality projects. It mainly invested in the DeFi field that year, and also invested in projects such as Reflexer, Union Finance, and Cozy Finance.
In 2021, Variant Fund continued to focus on infrastructure, DeFi and emerging Web3 projects, investing in Fei Protocol, Aleo, Yield Protocol, Phantom, Syndicate, Burrata, Aztec Network and other projects, all of which have achieved remarkable results and influence in their respective fields.
In 2022, NFT projects received a lot of financing, leading the investment in NiftyApes, Koop, Formfunction, and participating in Magic Eden, Oncyber and other outstanding projects. In that year, it also participated in the investment of zkSync, Aptos, Ceramic Network, Polygon and other industry-leading infrastructure projects.
Investment projects in 2023
In the first half of this year, Variant Fund invested in a total of four projects, most of which were in basic fields. Except for the project Botto which was related to the hottest artificial intelligence, there were no major investment moves or changes in direction.
Bang
Botto is an AI artist who draws inspiration from outstanding works in art history and generates new works of art through AI learning. At the beginning of its birth, Botto airdropped governance tokens to NFT creators and collectors on various platforms. Botto community members can vote for the 350 works created by Botto every week to determine the final work and the creative style of AI. Through this method, community members can deeply participate in the art creation process in an easy way.
Botto's works have also performed very well in the market. In early 2022, the transaction volume on SuperRare exceeded one million US dollars.
Botto has been online in the crypto art field for some time, but has never publicly received financing. Although Variant Fund may have been influenced by the recent artificial intelligence craze and saw Botto's potential in the fields of AI and blockchain, its innovativeness and artistry are the reasons why Botto has high investment value in the crypto art field.
3.6.3 Future investment directions
Variant Fund is focusing on the younger generation of entrepreneurs. From June to August this year, they will launch the first accelerator program "Variant Founder Fellowship" for Web3 founders who are in the early stages of their entrepreneurship. They will select 20 founders or teams to support them in the early stages. "Variant Founder Fellowship" is an important initiative launched by Variant Fund, which aims to support Web3 founders who are in the early stages of their entrepreneurship and provide them with more opportunities and resources in the early stages. The launch of this accelerator program fully reflects Variant Fund's attention and support for the encryption field, and also demonstrates the organization's support and encouragement for the younger generation of entrepreneurs.
Secondly, the Variant Fund team has supported dozens of leading projects in the industry, which now constitute their Variant Network. The establishment of Variant Network is also another important initiative of Variant Fund. Through this professional community, Variant Fund connects the founders and leaders in its portfolio to build and learn together. In this way, Variant Fund injects more vitality and momentum into the innovation and development of the encryption field, and also provides more opportunities and resources for young entrepreneurs.
In an emerging and rapidly developing industry like crypto, experts in the field are often builders at the forefront of innovation. Variant Fund advocates a network-based peer learning model, believing that this is the most effective way to illustrate the "excellent examples" that appear in the construction process of Web3, and effectively promotes its learning on topics such as product design, token strategy, and regulatory issues through Variant Network. We believe that Variant Fund will continue to promote the development and innovation of the crypto field and provide more opportunities and support for young entrepreneurs.
Overall, Variant Fund's investment strategy remains relatively stable while adhering to its open, collaborative and innovative investment philosophy. It is committed to providing funding and support for high-quality projects in the encryption field and promoting the development and application of encryption technology.
4. Conclusion
In this report, we take a deep dive into some of the major players in the crypto VC industry, including a16z, Multicoin Capital, Paradigm, Mechanism Capital, Polychain, and Variant Fund, as they adjust their investment strategies to adapt to changing market and technology trends, such as:
a16z has extensive investment experience and a wide range of investment portfolios. It has long focused on emerging blockchain projects and cryptocurrency innovations, and supports seed investments in startups. In the future, they will continue to value the long-term value of projects and may continue to invest in the AI field.
As a thesis-driven investment company, Multicoin Capital has extensive investment experience in major cryptocurrency projects such as Bitcoin and Ethereum. In the future, it may pay more attention to the construction of the Web3 ecosystem, turn its attention back to the infrastructure field in the volatile market, and on this basis, look for innovative projects with disruptive potential, such as projects in the fields of artificial intelligence and games.
Paradigm was established not long ago but has made its mark. The company is committed to long-term investment and innovative project discovery. In the future, it will continue to work with developers and entrepreneurs to provide technical support, business development and strategic guidance for investment projects to help these projects achieve commercialization and sustainable development.
Mechanism Capital will continue to focus on the DeFi and gaming sectors, and in the future may focus on projects that can combine traditional finance and the cryptocurrency market to bring more opportunities and liquidity to the cryptocurrency market;
As a large and leading cryptocurrency investment company, Polychain Capital will continue to adopt a prudent investment strategy in the future and diversify its investment portfolio to spread risks and maintain its competitiveness in the market.
Variant Fund is an emerging company that focuses on early-stage crypto asset investments, emphasizing technical strength and market prospects. In the future, they will focus on the younger generation of entrepreneurs and continue to establish close cooperative relationships with experts and entrepreneurs in the field.
In the future, we will continue to pay attention to and track the continued development and investment strategies of crypto funds, not limited to the six institutions mentioned in this article, hoping to provide some valuable insights for investors and everyone in the crypto ecosystem.
In general, many crypto VC investments will focus more on projects that help build the blockchain ecosystem and return to the infrastructure sector. Seed investment and investment in emerging projects (such as AI) are still important, but robustness and risk aversion are particularly important for larger funds, and permanent development is their topic. Of course, long-term investment, innovative project discovery, and technical support are essential for a good project, which will help them achieve commercialization and sustainable development, and can also strive for greater returns for VCs.
However, the crypto VC industry also faces some challenges, such as market risks, technological instability, and an uncertain regulatory environment. Therefore, crypto VC companies still need to maintain flexibility and keen insight to respond to market changes and opportunities. Accordingly, as the regulatory environment improves and investors' acceptance of crypto assets increases, the crypto VC industry will further mature and develop.
Understanding the investment direction and trends of crypto VCs is very important for both investors and entrepreneurs. We look forward to seeing these VCs continue to create value in the fields of crypto and blockchain and make greater contributions to the development of the crypto ecosystem.
List of investment projects of the six major investment institutions in the past year (2022.06-2023.06):
https://www.notion.so/betalpha/VC-42196768f0e947469feef27fb7a1e749?pvs=4
references:
https://dune.com/shogun/perpetual-dexs-overview
https://twitter.com/0xsurferboy/status/1665780567491870726
https://twitter.com/moomsxxx/status/1666496011165134848
https://www.rootdata.com/
https://www.coincarp.com/
https://www.theblockbeats.info/news/37009
https://www.odaily.news/post/5186632
https://coinstack.substack.com/p/the-crypto-vc-list-2023
https://foresightnews.pro/article/detail/32433