Billions on Web3. What is the largest cryptocurrency fund a16z is investing in
Andreessen Horowitz's cryptocurrency division has invested more than $100 million in blockchain projects in 2023
Here's what you need to know about the cryptocurrency division of venture capital firm Andreessen Horowitz and what startups and technologies the company is committing more than $7 billion to
Exactly one year ago, on May 25, 2022, venture capital firm a16z Crypto announced the launch of its fourth fund to support crypto startups, raising an industry record $4.5 billion. Andreessen Horowitz's cryptocurrency division remains the largest investor in the Web3 segment and is leading rounds of hundreds of millions of dollars in crypto projects.
The Andreessen Horowitz Venture Fund, or a16z, was founded in 2009 by Mark Andriessen and Ben Horowitz with an initial capital of $300 million. Now, according to Crunchbase, it has 27 funds under management, which have raised a combined $32.4 billion. The a16z crypto division was created specifically to invest in cryptocurrency projects. The company's four crypto funds total more than $7 billion.
"Evolution of the Internet."
Funds from the largest crypto fund, according to its website, go to support "promising Web3 startups at any stage." Investors are interested in developments in blockchain gaming, decentralized finance (DeFi), social networking, Layer 1 and Layer 2 blockchain scaling the infrastructure, bridges, decentralized autonomous organizations (DAOs) and governance, NFT communities, privacy, content monetization, regenerative finance, new applications of ZK proofs technology and others.
Fund managing partner Chris Dixon told The Verge's Decoder podcast that a16z crypto directly employs a team of about 60 people. In addition to himself, there are three other managing partners, Sriram Krishnan, Arianna Simpson, and Ali Yahya. More than 40 people are part of the operations team, and their job is to help with projects on all fronts, including recruitment, creating business strategies, and marketing. A separate five-person team is responsible for security, specifically auditing smart contracts.
In April, the company unveiled the foundation's quarterly State of Crypto report and the eponymous State of Crypto Index, an interactive tool that tracks 14 technology indicators each month to provide a snapshot of the state of the industry.
In a press release, the company urges to pay less attention to "the noise around fleeting price movements" and to rely on data that actually matters and reflects "the steady progress of Web3 technology." According to the authors, the data in the report confirms "a healthier industry than market prices might suggest" and a steady cycle of development, product launches, and constant innovation.
The main message of the report was that the scandals and series of bankruptcies of major market players last year demonstrated "the failure of centralized systems versus an open, resilient decentralized infrastructure." The authors write that Web3 is the "evolution of the Internet" that will take place with "cryptocurrencies, not crypto-casinos."
Who gets the investment?
A16z Crypto has a portfolio of dozens of crypto projects, including both established players and startups that are still building infrastructure. The company's early bet on Coinbase, the second-largest crypto exchange, proved to be one of the best in the history of venture capital funds, although it was accompanied by very specific accusations of insider trading. The fund invested in leading decentralized exchange Uniswap, NFT marketplace OpenSea and large infrastructure blockchain project Alchemy.
This year, the company has led several multimillion-dollar investment rounds for various crypto projects. Among them, for example, is a $25 million round by Here Not There Labs, which is developing the Towns protocol for blockchain-based group chat rooms that use end-to-end message encryption.
A recent nearly $30 million investment round closed the Story Protocol project from the developers of the Radish Fiction app, which was bought out by Korea's Kakao. The cryptocurrency division of Andreessen Horowitz also led the round, although it had previously invested $10 million in the project. A $40 million round led by the fund was also completed by blockchain game developer CCP Games.
Probably the main crypto-investment of the company this year was the project LayerZero. Its developers, led by a16z, closed a $120 million round, after which the valuation of the company behind it, LayerZero Labs, jumped to $3 billion. The total amount of venture capital investment in the project, which creates infrastructure for data exchange between isolated ecosystems built on different blockchains, exceeds $250 million.
Along with a16z, venture capital units of Samsung, Paypal, Sothbey's, and leading crypto-industry players have invested in LayerZero, including USDC stablecoin issuer Circle, OpenSea, and cryptocurrency exchange OKX.
Other projects in the fund's portfolio with more than $100 million in investments include Optimism, Aleo, Matter Labs (developer of the zkSync solution), and several others. From the last two, as well as from LayerZero, the cryptocurrency community expects to launch tokens and conduct airdrops following the example of Arbitrum or the same Optimism, but none of the companies have yet announced plans to issue their own assets.
Problems and Failures
Despite its scale and strong market position, a16z faced problems in 2022, just like the rest of the crypto-sphere. In October, The Wall Street Journal's sources reported that the value of the company's cryptocurrency fund had sagged 40% - noticeably more than in other avenues. This was recorded even before the general collapse of the crypto market, which was triggered by the bankruptcy of the FTX exchange.
Some of the fund's biggest investments probably didn't justify themselves. Among them is Helium, a mobile WiFi hotspot startup. The company announced in April that it was moving its infrastructure from its own blockchain to the Solana network, and the HT token is only traded on second-tier crypto exchanges, and judging by the price movement, it is not much in demand.
Another example is Dfinity, a project that became Internet Computer after being rebranded. Which raised $100 million from a16z in 2017, but did not actually produce any product, and invested investors' money mostly in a marketing campaign. However, given the success of other projects in the fund's portfolio, the financial return from investing in them can probably outweigh the losses from failed investments.
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