a16z at the worst of times All in cryptocurrency

a16z at the worst of times All in cryptocurrency

Image source: Generated by Unbounded Territory AI Tool

With cryptocurrency prices soaring over the last year, no investor has invested more in the industry than Andreessen Horowitz (A16z).

The legendary venture capital firm has forged a reputation for Silicon Valley’s largest cryptocurrency bull market, thanks largely to an A16z partner named Chris Dixon, 50, who was one of the earliest evangelists on how cryptocurrency-backed blockchain technology could transform business. His company was one of the most active cryptocurrency investors last year and announced a $4.5 billion cryptocurrency fund in May, the largest such investment ever.

The timing was not very good, and against the backdrop of a general market downturn this year, the price of Bitcoin and other cryptocurrencies fell sharply, erasing billions of dollars in paper earnings from the A16z fund. Consumer demand for some of the company’s most valuable crypto startups has faded, while others have faced increasing scrutiny from regulators.

According to people familiar with the matter, A16z’s flagship cryptocurrency fund lost about 40% of its value in the first half of the year. According to fund investors, this decline is much larger than the 10% to 20% decline recorded by other venture funds, which have largely avoided risky practices of buying volatile cryptocurrencies.

Despite having record cash reserves, A16z has significantly slowed the pace of its cryptocurrency investments this year.

Now, Chris Dixon has to convince nervous investors that A16z didn’t go too far for the May fund, which other crypto venture capitalists say is too big for an industry heading into the so-called crypto winter.

Ben Narasin, general partner at venture capital firm Tenacity Venture Capital, said: “They’ve gone too far in cryptocurrency, and I’m not sure they’ll be able to rebalance.”

Chris Dixon said in an interview that he remains true to the vision of a crypto-centric internet called Web3, which is fundamental to A16z’s entry into the space, with blockchain versions of a series of services that will return financial control and power to users in the form of cryptocurrencies, who can earn and trade cryptocurrencies.

“The industry is still in the early stages of acquiring users and is uncertain when mass adoption of blockchain services will occur,” Dixon said. Cryptocurrency is about the political and administrative structure of the internet, and we have a very long-term vision.”

Dixon’s path from the periphery of A16z reflects the company’s transformation into a cryptocurrency giant.

A programmer since childhood, he earned a master’s degree in philosophy and business, helped found and sold two startups — one in cybersecurity and the other on e-commerce — and co-founded venture capital firm Founder Collective, and fostered an interest in emerging technologies like virtual reality and 3D printing.

He joined A16z in 2012, and the company, founded in 2009 by Marc Andreessen and Ben Horowitz, quickly became one of the largest and most influential tech investors, fueled by Anderson’s famous motto that “software is eating the world.”

a16z at the worst of times All in cryptocurrency

Chris Dixon, in 2014, without a coat, was an early evangelist on the blockchain technology behind cryptocurrencies.

At a time when many major investors still see Bitcoin as nothing more than a paradise for money launderers and speculators, Mr. Dixon champions its possibilities, writing blog posts — a blessing among young cryptocurrency entrepreneurs — describing how Bitcoin will create a new, decentralized financial system. Within two years, Anderson has invested nearly $50 million in Bitcoin-related projects, including cryptocurrency exchange Coinbase.

Mr. Dixon’s passion for the space grew with the launch of Ethereum in 2015, which uses the same type of blockchain-based distributed record to let developers build applications beyond payments. Mr. Dixon likened the arrival of Ethereum to the birth of the iPhone App Store and said it shows that the world of cryptocurrency investment is bigger than thought. People familiar with the matter said he told Anderson and Mr. Horowitz that he wanted to shift his focus away from traditional investments and set up a dedicated cryptocurrency fund.

The $350 million cryptocurrency fund, launched in 2018, is the first of its kind created by a traditional venture firm. Andreessen remained a bullman that year when Bitcoin and other cryptocurrencies lost most of their value and raised a second cryptocurrency fund in 2020 totaling $515 million.

Dixon and his team are also increasingly touting their vision for Web3. They argue that blockchain creates currency-like tokens for users that could give them more control and economic benefits over blockchain-based versions of services such as ride-sharing and social media, weakening the power of dominant tech monopolies.

In addition to investing in cryptocurrency companies, A16z also buys tokens they create, effectively investing in the company and its products separately. This unconventional strategy brought windfalls during cryptocurrency bull markets, but it also increased the risk of trading.

According to documents reviewed by the Wall Street Journal, as of the end of last year, the first cryptocurrency fund had doubled its initial investment by 10.6x after fees, making A16z the best performing fund on paper in history.

Public documents show that within two months of Coinbase’s direct listing in April 2021, Andreessen returned more than $4 billion in shares to its investors, making it one of the most lucrative bets in venture capital history. The documents show that Andreessen’s third venture fund backed Coinbase in 2013, with a paper return of 9.7x after fees as of December 31, second only to the first cryptocurrency fund in performance at the time.

Buoyed by the earnings, the A16z embarked on a fundraising blitz. It began raising $1 billion for its third cryptocurrency fund, eventually raising $2.2 billion in June 2021.

“The crypto team’s strategy is to use its cash reserves to write big checks to startups, promising to use blockchain to reinvent everything from digital art to online gaming,” Dixon said. This aggressive approach often prevents other investors from working with it, making A16z the startup’s largest shareholder.

According to PitchBook Data Inc., Andreessen backed 56 U.S. cryptocurrency exchanges last year, making it the second-largest cryptocurrency funder after Coinbase Ventures in terms of investment volume. Some early-stage investments seem to have taken off. In January 2022, 10 months after Andresen led an early funding round, the valuation of OpenSea, an NFT trading platform, soared more than 100 times to $13 billion.

In his push to dominate the industry, Anderson threw out established investment norms. People familiar with the matter said that in November, its investors tried to invest in NFT marketplace Magic Eden, but were unsuccessful, although the company has backed OpenSea. Venture capitalists have long avoided supporting potential competitors because it damages their reputation with founders who don’t like the practice. Mr. Dixon said the fund does not support companies that compete directly with existing portfolios.

Within a few months, the market changed, and as users dumped their crypto holdings, the demand to support the A16z fund disappeared. OpenSea’s monthly trading volume has plummeted since its funding in December due to a general collapse in the NFT market, while Coinbase’s monthly active users fell 20% in Q2 from a peak of 11.2 million in the fourth quarter of last year, with both companies laying off about a fifth of their employees this year.

Anderson is also grappling with greater regulatory scrutiny of crypto startups and the funds that support them, which could end the era of lax regulation, which allowed thousands of cryptocurrencies to be created.

A16z is making adjustments, and according to PitchBook, A16z announced nine cryptocurrency startup deals in the third quarter, down from a high of 26 cryptocurrency transactions in the fourth quarter of last year. People familiar with the matter say the company also lowered the value of its second and third cryptocurrency funds this year, though not as sharply as the first crypto fund.

At the same time, the cryptocurrency invested by A16z is plummeting. Solana, a new cryptocurrency that A16z bought in June 2021, has fallen in value by more than 80% since the beginning of the year. In the first half of the year, Anderson lost $2.9 billion in the remaining stake in Coinbase as the cryptocurrency exchange’s share price shrank by more than 80%.

“The downturn in the market is an opportunity for the A16z Fund to continue supporting cryptocurrency entrepreneurs, similar to what it has done in previous downward markets,” Dixon said. I’m not looking at prices, I’m looking at the activity of entrepreneurs and developers, and that’s the core metric.”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a16z-at-the-worst-of-times-all-in-cryptocurrency/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2022-10-27 23:41
Next 2022-10-27 23:43

Related articles