Market Analysis and Value Insights of 6 Top Encrypted VCs
1. Overview
With the rapid development of blockchain technology, the growing cryptocurrency and decentralized financial industry has promoted the rapid growth of the crypto venture capital industry. Crypto Venture Capital （Crypto VC for short） is a class of venture capital firms focused on investing in cryptocurrencies and blockchain. They provide funding and resource support to startups and projects to drive the development and innovation of blockchain technology, and crypto VC is gradually becoming a significant force in the venture capital space.
This article will discuss the crypto venture capital industry, focusing on the analysis of six top crypto VC firms, including a16z, Multicoin Capital, Paradigm, Mechanism Capital, Polychain and Variant Fund, and explore their following aspects in the industry:
Overview of each VC company: This section will introduce the basic situation of the six encrypted VCs, including the company’s establishment background, team composition, investment strategy, etc., so that readers can have an overall understanding of each company;
Investment analysis over the years: This part will sort out and analyze in detail the investment projects of various crypto VCs over the years, including data on investment fields, investment rounds, investment amounts, etc., in order to reveal the investment priorities and trends of each company;
Analysis of investment cases: This part will select typical investment cases of various encryption VCs, deeply analyze the logic and values behind the investment, and demonstrate the investment strength and vision of each company in different dimensions;
Future development forecast: This part will combine the development trend of the global encryption market, predict the future development direction of the six encryption VCs, propose possible market opportunities and challenges, and provide reference for investors and industry practitioners.
This report intends to give readers a more detailed understanding of the crypto VC industry and provide some valuable insights for investors and market observers through the detailed elaboration of the above content.
(The analysis institutions selected in this article do not represent any ranking, but only provide a reference for the analysis capital framework and template. Other capitals can refer to the above template for analysis. In the future, we will continue to pay attention to the investment strategy changes and strategies of various VCs in the industry development layout.)
2. Overall comparative analysis of the encrypted VC market
As an emerging and fast-growing field, the crypto investment industry has experienced rapid growth and changes over the past few years. On the whole, the health of the industry is relatively good, and the investment scale and innovation activities continue to grow, providing strong support for the development and innovation in the encryption field.
Among the top 50 cryptocurrency venture capital firms in the world, the San Francisco Bay Area accounts for 45.2% of the market in terms of capital under management, with a management scale of more than $26B, which is almost equal to the sum of all other cities in the world.
When comparing the data from the two bear market periods, we can see that there is more venture capital invested in crypto companies now (January - February，2023) than during the same period four years ago (January - February，2019). It has increased by 3.1 times —— in the period of 2019, the investment amount was 471 million US dollars, while this year's figure reached 1.45 billion US dollars. That is, even in the deep bear period, the total equity investment of venture capital firms into crypto companies is still more than $25 million per working day.
According to the investment behavior 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 completed 49 investments in the first half of 2023, which also proves the above In fact, the encryption ecology is generally improving.
Except for Paradigm and Polychain Capital, the peak investment times of the remaining four funds appear in 2022. Among them, a16z is one of the most active investors, reaching 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 DeFi and infrastructure fields. In comparison, a16z, Paradigm and Variant Fund paid more attention to the NFT field. Furthermore, a16z and Mechanism Capital also invested in many game projects that year, while Paradigm focused more on the CeFi field. The investment scope and direction of these investment companies are relatively wide, covering multiple fields and subfields in the encryption field, and building a healthier encryption ecosystem based on this.
The investment strategies of these investment companies are also relatively flexible. While investing in startups, they also invest in mature encryption 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 noticed that a16z and Paradigm have a relatively high proportion of leading investors, and most of the investment projects are more than $50 million in financing scale. At the same time, Mechanism Capital and Variant Fund may participate more in the investment of early projects, such as seed round and angel round, so the investment amount is relatively low and also the investment is more flexible.
The difference in this investment strategy is mainly due to the investment styles and advantages of different encryption VC companies. Large VC firms such as a16z, Paradigm, and Polychain usually have more resources and experience, can better support mature encryption projects, and are more willing to take higher investment risks.
Smaller funds typically have less investment capital and resources than larger VC firms, so they tend to focus more on technology and innovation rather than size 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.
Besides, 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 seasoned investors usually have a deep understanding and insight into the crypto market, and are able to spot and invest in projects that large VC firms may overlook.
It is worth noting that this is just a typical investment strategy of some crypto VC firms, and it does not mean that they will remain the same forever. With the continuous development and changes of the encryption market, the investment strategies of different encryption VC companies will also be constantly adjusted and optimized to better adapt to the needs and changes of the market.
3. Detailed introduction of the six top encryption VCs
3.1 Andreessen Horowitz (a16z)
3.1.1 Basic introduction
a16z is a venture capital firm headquartered in Silicon Valley, USA. Founded in 2009, the full name of the company is Andreessen Horowitz, co-founded by Marc Andreessen and Ben Horowitz.
a16z is characterized by a wide range of investment and innovative investment methods. It is also committed to providing strategic guidance and resource support for invested companies to help them achieve long-term development and success. The firm's portfolio includes many well-known technology companies such as Airbnb, Facebook, Slack, Lyft, PagerDuty, Pinterest, and more.
a16z is also one of the important investment institutions in the encryption field. It started investing in Bitcoin and blockchain technology as early as 2013. Its early investments in the encryption industry include: Coinbase, Ripple, BitGo and 21 Inc.
In recent years, a16z has also continued to pay attention to the development and innovation in the encryption field, and actively explore new investment opportunities and strategies on this basis. Successively invested in many other crypto projects, such as Uniswap, Compound, dYdX, Solana, Celo, Dfinity, Flow, Arweave, Near, etc. These projects are all making innovations and breakthroughs in different directions, providing new ideas and possibilities for the development of the entire encryption field.
In addition to investment behavior, a16z also plays an important role in strategic guidance and resource support in the encryption field. The company has specially established an encryption fund and hired a group of professionals with rich experience and knowledge in the encryption field to provide all-round help and support for the invested companies. Moreover, the company also regularly publishes research reports and analysis on the encryption 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 by many investment institutions has dropped significantly, and a16z is no exception.
In the early stage of entering the encryption market, a16z mainly invested in areas such as infrastructure, exchanges and wallets.
As early as 2013, a16z led the B-round financing of coinbase, the leading CeFi institution in the market today, and continued to participate in the investment in 2018. Coinbase has also become one of the largest cryptocurrency trading platforms in the world, with millions of users and Billions of dollars in transaction volume. Besides, a16z has also invested in many other blockchain and cryptocurrency projects. For example, the DeFi project dYdX in 2017 is one of them. a16z organized and led its seed round and made additional investment in 2018. In the new round of A lead investment, it successfully raised $10M, and in the B round of financing in 2021, we can still see a16z participating in the investment. In addition, a16z led the investment in MakerDAO in 2017, led the investment in the encrypted lending project Compound for two consecutive years in 2018 and 2019, and led the three rounds of Celo project in 2018, 2019 and 2020.
With the development of the encryption market, a16z began to increase the number and amount of investment in the encryption field in the second half of 2020 and 2021, and gradually shifted its attention to emerging fields such as DeFi and NFT.
Because it has been adhering to the mode of discovering new projects and exploring new strategies in the encryption field, and seeking transformation, it chose to adopt the investment strategy of the token model in Uniswap.
Andreessen Horowitz, as a giant whale player in Uniswap, holds a total of 15 million UNI tokens. He has a huge influence in every public vote of the project, and because of the custody settings of his tokens, it cannot be verified in technical inspections. Participating in the heat check, that is to say, players participating in voting cannot know the results of a16z's voting, and an a16z spokesperson confirmed that the company plans to participate in any on-chain voting. Because it has such a huge influence in the project, its voting behavior has attracted much attention. 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 times appeared in 2022. In addition to continuing to focus on the game industry and increasing investment in infrastructure projects, a16z has begun to pay more attention to innovative Web3 projects and the NFT field. Relatively, the 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 at a valuation of $4B. It is one of the projects with the highest financing in the NFT and Metaverse fields in recent years. It also participated in the lead investment of Opensea's A and B rounds of financing, establishing its position in the NFT trading market.
2023 Investment Project
Apart from investing in infrastructure and game metaverse projects, a16z has also maintained its focus on emerging fields, including the expansion of the most popular artificial intelligence applications, and discovering opportunities for investment.
From its latest two rounds of investment projects, Worldcoin and Gensyn, it can be clearly seen that its focus has changed significantly. In addition to the conventional projects that continue to focus on the traditional encryption market, there is a tendency to shift their attention to the AI field.
Worldcoin
Worldcoin is a crypto project founded by OpenAI founder Sam Altman. Since most people in the world are currently unable to verify their identity through digital means, Worldcoin's vision is to build the world's largest and fair digital identity and currency system. In order to 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, and Mirror, the founders of multiple Ethereum projects, Polkadot, and the Web Foundation have all participated in the angel round investment. . The two rounds of financing totaled US$125 million and are currently seeking US$100 million in financing.
Gensyn
Gensyn is a decentralized AI computing network that utilizes 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, safer, and more reliable computing resources for the training of AI models.
The reason why 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 efficient allocation and utilization of computing resources. Gensyn also has the advantage of being decentralized, which means its computing network is not subject to a single point of failure and is able to provide greater security and reliability. These factors make Gensyn a very promising project and meet a16z's criteria when looking for investment opportunities.
3.1.3 Future investment direction
Compared with other VCs, a16z also continues to pay attention to the development of the encryption market in the bear market and actively invests in this field. They announced a new cryptocurrency fund in 2022 to support emerging blockchain projects and cryptocurrency innovations, with $1.5 billion in the fund dedicated to seed investments in Web3 startups.
The fund will provide startups with funding and resources to help them build sustainable crypto ecosystems. 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 space have covered various aspects, including decentralized finance, digital identity verification, cryptocurrency exchanges and mining, etc. These investments not only promote the development of cryptocurrency and blockchain technology, but also bring considerable returns to a16z itself. Artificial intelligence is one of the hottest technical fields at present, and it has a wide range of applications in many fields such as medical care, 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 encrypted 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 the efficiency of healthcare.
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 fields will become important trends in the future and will continue to contribute to the success of these fields. a16z's investment and behavior in the encryption field not only brought rich returns to the company itself, but also injected new vitality and impetus into the development of the entire industry. In the future, a16z will continue to pay attention to the development and innovation in the encryption 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
Founded in 2017 by three founding partners, Multicoin Capital focuses on research and investment in blockchain technology, cryptocurrencies and decentralized applications, as well as emerging technologies and trends related to them.
Multicoin Capital's investment strategy is based on in-depth industry research and analysis, as well as keen insight into emerging technologies and trends. They believe that the cryptocurrency and blockchain space is a long-term investment opportunity. Therefore, the company will attach importance to long-term investment strategies, hold and support those companies and projects that have leading positions in technology and market.
Moreover, they will also pay attention to the values and social impact of investment projects. The company prioritizes projects with social significance and values, and avoids investing in projects that could negatively impact 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 notable investments include Solana, The Graph, Portals, Arweave, StarkWare, and more.
On top of investing, the agency is 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 will regularly publish reports and articles covering various 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
Multicoin Capital mainly focused on infrastructure investment in the first few years of joining the cryptocurrency industry. They participated in Solana’s seed round investment in 2018, and then led Solana’s A round of financing in 2019, a project aimed at improving the scalability and user-friendliness of the blockchain. Additionally, Multicoin Capital participated in the Series A round of StarkWare, a project focused on improving blockchain privacy and scalability. In 2019, they also led a seed round for The Graph, a protocol for distributed web 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 growth. These investments not only earned high returns for Multicoin Capital, 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 investing in infrastructure or 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, starting from 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, and more.
Other than the DeFi field, Multicoin Capital has also made some important investments in fields such as artificial intelligence, gaming, and Web3. For example, they have invested in projects such as Alethea AI, Portals, Metaplex and Fractal.
Additionally, this institution was a former investor in FTX and FTX US. Multicoin Capital did suffer losses after investing in FTX and related Solana properties. In particular, FTX, as one of the largest CEXs ever, was also a key project that Multicoin Capital once paid attention to and invested in. The sudden thunderstorm incident was also unexpected to everyone.
2023 Investment Project
In the first half of this year, Multicoin Capital invested in a total of 6 projects, mainly infrastructure and Web 3 projects, four of which were leading investors, respectively wallets, security solutions, DeFi (MEV) and DAO solutions. They 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 encrypted VC industry is also gradually taking shape.
TipLink
TipLink is a project jointly led by Multicoin Capital and Sequoia Capital, with participation from Solana Ventures, Circle Ventures, and Paxos. As a lightweight wallet, TipLink aims to make digital asset transfers as easy as sending a link. Non-custodial wallets allow users to take full control of their assets by connecting a Gmail account or Solana wallet. Users with cryptocurrency can then create this wallet and send this link to anyone via any platform (text, discord, email, etc.). In this app, the link is the wallet.
TipLink is currently only available on the Solana network, and TipLinks can generate and hold SOL, SPL tokens, NFT and SFT. Once generated, new or native blockchain users can receive digital assets and have full control over them through the link. Use TipLinks and Solana Pay to create direct relationships with customers through peer-to-peer payments. No need to worry about transaction fees, frozen funds or chargebacks.
3.2.3 Future investment direction
With the maturity of the cryptocurrency market and the expansion of application scenarios, the investment direction of Multicoin Capital 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 have also begun to focus on projects in areas such as artificial intelligence and games, and have made some important investments in these areas. Whether investing in infrastructure or investing in other fields, Multicoin Capital has always maintained a high degree of acumen 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 encryption field this year, it does not mean that they have given up their attention and interest in this field. Instead, they continue to look for new investment opportunities and adjust their investment strategies and portfolios to reduce risk and achieve better investment returns. For example, turn your attention back to the infrastructure field and start looking for those Web3 projects that may have a greater impact on the entire industry. Multicoin Capital believes that Web3 is the future of the next-generation Internet and will have a profound impact on the entire industry in the next ten years. Therefore, they are actively looking for those potential Web3 projects, and provide funding and support for these projects.
Of course, Multicoin Capital may continue to focus on the infrastructure field, and they believe that infrastructure projects will still have a profound impact on the entire industry in the next ten years.
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 cryptocurrencies and blockchain technology.
The company's investment philosophy is long-term investment and strategic investment, that is, to invest funds in projects with long-term potential, and to establish close cooperation with these projects to jointly promote the development of the entire industry.
Different from other VCs, after investing in the project, Paradigm will also actively participate in and support the community and ecosystem construction of cryptocurrency and blockchain technology, and provide strategic guidance, technical support and business development support for the project , to help these projects achieve commercialization and sustainable development.
Paradigm has a lot of investments in infrastructure, DeFi, NFT and CeFi. The institution continues to monitor the development of various industries in the encryption field, and is committed to providing technical financial support and operational assistance for new projects.
3.3.2 Comparison of investment projects over the years
After entering the encryption ecosystem, Paradigm focused on the infrastructure and DeFi fields, and after leading StarkWare’s A round of financing, it continued to lead its B and C rounds of financing, and continued to pay attention to its development. The same is true for Uniswap. Since the lead investment in Uniswap in 2019, he has been paying attention to the development of the project, and will continue to participate in the 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 long-term invested in a series of leading encryption ecological projects, such as Optimism, Cosmos, Argent, Reflexer, Yield Protocol and Axie Infinity, etc. The development of these projects has fully demonstrated Paradigm's long-term investment philosophy and strategic investment strategy.
Since 2021, Paradigm has begun to increase its attention and investment in the fields of DeFi, NFT, CeFi and games, and gradually expand the scope of investment in the encryption ecosystem. In addition to investment, Paradigm also actively participates in the construction and promotion of the blockchain ecosystem and provides corresponding assistance for these projects.
For example, in the CeFi space, Paradigm led Coinswitch’s Series A round in 2021 and participated in Bitso’s D round. Coinswitch is currently the most popular cryptocurrency application in India, while Bitso is the largest cryptocurrency exchange in Latin America. This is the first time that Paradigm has participated in the financing of two cryptocurrency exchanges after entering the encryption 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, etc.
Paradigm has continued to be optimistic about infrastructure and NFT-related fields in 2022, and has begun to mine new Web3 projects. They hope to discover new ways to play for the entire encryption ecosystem, and insist on continuous construction. The first is to continue to invest in projects such as Opensea, Magic Eden, and Limit Break in the NFT field. These are institutions and companies with important status and influence in the NFT ecosystem. They also invested in two crypto wallet projects, Argent and Phantom, which are leaders in cryptocurrency storage and management. Moreover, in order to give more opportunities to new projects, they have also invested in many new Web3 innovative ideas. For example, Jambo is an education-related industry. These new projects may promote the application of cryptocurrency and blockchain technology in the future has an important role.
2023 Investment Project
In the first half of 2023, Paradigm only participated in and led investment in 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 concentrate their investments in the infrastructure field in order to reduce the error rate under the market downturn, and chose to make small investments. The two projects currently have funding of $6 million and $7 million, respectively.
Code4rena
Code4rena is a web3 security auditing platform. Security audit competitions differ from traditional audits and bug bounties by providing broader coverage to the protocol and guaranteeing payment to participants. Participants in the arena include: Guardians, who protect the DeFi ecosystem from threats by auditing code; Sponsors, who create prize pools to attract wardens to audit their projects; Judges who decide the severity, validity and quality of findings , and rate the warden's performance. As a competitive auditing platform, Code4rena finds more high-severity vulnerabilities faster than any other auditing method.
Built by a team of leading industry experts, Code4rena aims to protect projects and communities by providing access to the world's best security researchers and smart contract experts.
Conduit
Conduit is a crypto-native infrastructure platform designed to empower and accelerate builders in the crypto space. Its first offering enabled teams to scale their applications by around 100x, enabling them to launch production-grade rollups built on top of the OP Stack in a fraction of the time. Infrastructure professionals manage, launch, and scale application-specific rollups on Conduit so 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 direction
Paradigm's timely adjustment of investment strategy can be seen from its keen insight and coping ability to the market situation, as well as its basic judgment on the current ecology. Despite the downturn in the market, the development of the infrastructure field is still one of the important factors to maintain the stable and healthy development of the encryption ecosystem, and it is also the embodiment of Paradigm's long-term investment philosophy.
In the future, Paradigm may also deploy in new areas to find new investment opportunities and promote the development of the entire encryption ecosystem. For instance, the artificial intelligence (AI) related industries that are currently hotly discussed, among 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 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 projects. It is found that the artificial intelligence sector is in the early stage of development, which is in line with Paradigm's investment philosophy, and it will also facilitate their subsequent participation in the construction of project communities and ecosystems and timely assistance.
Paradigm may look for opportunities in these emerging fields 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 obtain more returns on future investments.
3.4 Mechanism Capital
3.4.1 Basic introduction
Mechanism Capital is an investment firm focused on cryptocurrency and blockchain technology, established in 2018. As an emerging VC, Mechanism Capital is more flexible and innovative, and mainly focuses on small-amount financing. They not only pay attention to the quality and growth of investment projects, but also pay attention to the overall development of the blockchain ecosystem, and actively promote the innovation and development of the industry.
The company stated on its official website that although it is full of interest in all aspects of the encryption ecosystem, its main focus in the early stage of investment is still in the field of DeFi and infrastructure. After a few years of stable operation, the company gradually expanded its investment territory In the field of games and NFT, for example, at the beginning of 2022, it raised 100 million US dollars to establish a game fund to carry out more comprehensive track investment and layout, which can also be intuitively reflected in its investment layout over the years. They hope to help support the construction of brand-new financial systems and applications on the public chain, and through their own participation, enhance the industry's understanding of the value acquisition, incentives and mechanism design of encrypted assets.
Team members have deep technical backgrounds and rich industry experience. They are committed to contributing to the development and innovation of the blockchain ecosystem, and helping these projects achieve commercialization and sustainable development by investing in and supporting promising projects .
Andrew Kang, one of the founders, used to be the investment director of Ledger Capital, a Bitcoin investment company, responsible for the management and strategy of blockchain and cryptocurrency portfolios, and was also an advisor and investor in several cryptocurrency projects. Another founder, Vance Spencer, has worked in 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 Framework Ventures, a blockchain investment company.
Mechanism Capital stated that they are less influenced by external investors, so they can flexibly 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, an investment style that began to emerge after their first entry into the crypto market in 2020. Throughout 2020, among the financing projects they participated in, SifChain’s seed round financing amount was the highest, with a total financing of 3.5 million US dollars, while the financing amounts of other projects were all between 1.2 million and 3.1 million US dollars. 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 are more inclined to spread the risk to multiple projects and fields through this small investment method, and increase the investment amount when needed.
In 2021, Mechanism Capital began to focus its investment on DeFi projects, which is consistent with what they declared on their official website. In 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 financing amount, reaching US$14 million, followed by the cross-chain aggregator project XY Finance, which received US$12 million in financing. Besides, infrastructure projects are also favored by Mechanism Capital. A total of 10 infrastructure projects have received financing throughout the year, including XDEFI’s A-round lead investment, Nameless and Biconomy’s lead investment, and multiple participations Project Burnt. These investment behaviors show that Mechanism Capital is gradually determining its investment direction and looking for potential projects for investment.
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 game projects. 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. Moreover, they also participated in the NFT project UpShot twice, and led the reNFT strategic round of financing, which received 5 million US dollars in financing. In terms of infrastructure, they participated in the NEAR Protocol, a layer protocol, which is also the project with the highest financing after Mechanism Capital entered the encryption ecosystem. In the field of DeFi, they participated in the seed round financing of Morpho, a lending agreement, and participated in the Hubble Protocol, a stable currency agreement, for three consecutive times. Hubble Protocol is a decentralized finance (DeFi) protocol built on Solana. Its core product is USDH, a decentralized stablecoin that can be borrowed and borrowed with users' encrypted assets.
2023 Investment Project
In the first half of this year, Mechanism Capital invested in four projects, two of which were in the game field, and the rest were related to DeFi and NFT. The project with the highest financing is the metaverse project Avalon led by Mechanism Capital, which raised $13 million in a round of financing, and the remaining project financing is between 1.5 million and 5.5 million.
Avalon
Avalon, an Orlando, Florida-based company, is building a gaming platform that aims to leverage virtual universe technology to create an interoperable universe. The company was founded by the leaders of games such as EverQuest, Call of Duty, Diablo, God of War, Assassin's Creed, and Elden Ring.
Avalon's game platform will use game engines and technologies such as blockchain technology to link together to build a virtual universe. The company's CEO, Sean Pinnock, told GamesBeat that while the company doesn't call its platform a "Metaverse," they imagine a future where people can easily build worlds and experience these dreams. tools and bring those experiences together to create something like a virtual universe.
Avalon's goal is to change the digital world and make sure those changes benefit both creators and gamers. Engagement is driven through play, creativity and human connection, Pinnock said, key elements that are sorely lacking in most self-proclaimed virtual worlds. Therefore, Avalon hopes to build a virtual world from games through technological integration, thereby creating a more realistic and interactive virtual universe.
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 of the application of blockchain technology.
3.4.3 Future investment direction
According to the official website, Mechanism Capital may continue to focus on DeFi and games in the future. The agency has relatively rich experience and in-depth knowledge in this field. The DeFi field is one of the most popular fields in the cryptocurrency market. There are a lot of innovations and opportunities to provide users with more secure, transparent and open financial services. At the same time, this is also one of the fields with the largest number of daily participants and the most stable user base in the encryption 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 agreements, etc., which is their original intention to establish the fund at the latest. The agency has also set up a special fund for the game field to prepare for follow-up investment.
Besides, given that both investors have financial backgrounds, Mechanism Capital may continue to focus on projects that can bring together traditional finance and cryptocurrency markets. These projects can bring better efficiency and transparency to the traditional financial industry, and can also bring more opportunities and liquidity to the cryptocurrency market.
Other than the DeFi field and financial-related projects, Mechanism Capital has 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 can invest more flexibly in these emerging fields.
In general, Mechanism Capital will continue to focus on potential projects and fields in the cryptocurrency market, including the DeFi field, 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 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 was founded by former Coinbase engineer Olaf Carlson-Wee, who is also one of the biggest names in the cryptocurrency space.
Polychain Capital's investment focuses 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.
The investment philosophy of Polychain Capital tends to be early investment and venture capital. Most of the projects they invest in are also large in amount of financing. They often invest in the project startup stage or early stage 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. Aside from high-risk investments that can also bring high returns, it is also one of their ideas to find those unique, practical and innovative projects. They believe in their own investment vision and firmly believe that these projects have great development potential .
Apart from investment, Polychain Capital also actively participates in the construction and promotion of the blockchain ecosystem. They provide technical support, business development, strategic guidance and other support for these projects, helping these projects achieve better commercialization and sustainable development. They also actively participate 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 a clear tendency to invest in the infrastructure field and the DeFi field, and most of the investment amount is used in these two directions. Polychain Capital's investments in the infrastructure field 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 remarkable. These projects include decentralized exchanges, stable currency agreements, lending agreements, 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, the decentralized exchange dYdX, and participated in the cross-chain protocol Polkadot and the decentralized exchange 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 the investment process, but unlike the previous investment tendency, due to the rise of the decentralized financial field, the number of DeFi projects invested by the institution this year accounted for 45% of the total amount of the year, followed by In the CeFi field, investment in infrastructure projects has been suspended, and only three projects have been financed by the institution throughout the year.
In the following 2021 and 2022, the institution has changed back 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 the investment in many projects such as Solana, Connext, Avalanche, Scroll, AltLayer, EigenLayer, Celestia, etc. Most of the investment projects are participated in the form of lead investment, and of course it also participated in investment such as Arbitrum, Evmos, Gauntlet, etc. Now well-known projects. In the field of DeFi, he is also the leader of excellent projects such as Uniswap.
2023 Investment Project
From 2023 to the end of June, Polychain Capital invested in a total of 15 rounds, still maintaining its consistent style. The investment is mainly in infrastructure, and 10 of the projects are the leading investors, and the seed round, A round and strategic round Secondary. 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 using the Cosmos SDK, focused on DeFi and compatible with EVM, powered by Proof of Liquidity consensus.
Berachain's development team realized that one of the common problems with current L1 is liquidity, so they designed a Proof of Liquidity to attract and retain assets. Users can stake whitelisted assets like BTC, ETH, and stablecoins on validator vaults and receive a portion of 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, used as a medium for pricing and execution. BGT is Berachain's governance token that enables voting on new whitelisted assets. HONEY is Berachain’s USD stablecoin used as a payment method for protocol revenue. This economic model is called "Tri-Token" by the development team, and it aims to encourage users to use it for a long time and maintain the consistency of liquidity on the chain. Berachain's liquidity consensus proof and three-token economic model help provide faster transaction speeds, lower transaction costs, and instant finality, and bring abundant 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 direction
As a relatively large investment institution with a relatively stable investment strategy, Polychain Capital may have some fine-tuning of its investment direction in the encryption field in the future, but the overall investment strategy and direction may not change much. Focus on the infrastructure and DeFi fields.
Of course, for a better business model and future development, Polychain Capital may pay more attention to the early value of a project and the sustainability of development, and will also look for projects with good business prospects and development models to ensure the return on investment.
Portfolio diversification may be their next focus. Although Polychain Capital has made many successful investments in fields they are familiar with, they also know that in a rapidly changing market, portfolio diversification is the key to maintaining competition. key to strength. Therefore, Polychain Capital may look for investment opportunities in other fields related to the cryptocurrency field, such as artificial intelligence, big data, Internet of Things, etc.
Although Polychain Capital has not shown any special concern in the field of artificial intelligence at present, the combination of artificial intelligence and blockchain technology is now a field that has attracted much attention. Almost all investment institutions will pay close attention to this track and invest in some promising Foreground items. These projects may include artificial intelligence applications that use blockchain technology to protect data privacy, Internet of Things applications that use smart contracts to manage supply chains, and more.
Big data analysis is also an important field, 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, using blockchain technology to protect data privacy and security, etc.
In general, the diversification of the investment portfolio is the key to maintaining competitiveness. Polychain Capital may pay more attention to investment opportunities in other fields related to the cryptocurrency field than before on the basis of maintaining a stable investment attitude. Diversification and risk control provide more options.
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.
Founded in 2020, the company was co-founded by Jesse Walden and Li Jin, both veteran investors in the cryptocurrency and blockchain space. Jesse Walden is the investment partner of a16z's first encryption fund, and later led the 12-week accelerator "a16z Crypto Startup School" initiated by a16z crypto. It is understood that Variant has great influence on Uniswap, Phantom, Mirror, Flashbots, Foundation Investments in such projects are led by Jesse. Variant’s other co-founder, Li Jin, also comes from a16z, but belongs to the consumer investment team. The two founders don’t have much overlap 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 encryption projects such as the game union Yield Guild Games and the DAO platform Syndicate.
In July 2022, when the crypto market entered the cold winter, Variant Fund announced the launch of a fund with a capital scale of up to 450 million US dollars. This is already 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 the fund launched each time is the same as the previous one. The growth rate of the company has attracted the attention of the industry.
Variant believes that cryptocurrencies will be the foundation of a user-owned network where products and services turn their users into owners. The key research directions of the investment team professionals it configures, on the other hand, also indicate the vertical segments they focus on in the encryption industry.
On top of 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 the official website of Variant Fund, the institution has invested in 54 crypto projects, with fewer investment projects and a lower proportion of leading investors, around 18%. The investment is basically evenly distributed in infrastructure, DeFi, NFT and other fields, among which there are many Aptos , Foundation, Polygon, Mirror, Phantom, Uniswap and Magic Eden and other well-known projects in multiple vertical fields.
In 2020, the newly established Variant Fund immediately participated in Uniswap’s A round of financing, and in 2022 participated in Uniswap’s B round of financing, showing the institution’s keen insight and investment vision for high-quality projects. And in this year, it mainly invested in the DeFi field, and also invested in projects such as Reflexer, Union Finance and Cozy Finance.
In 2021, Variant Fund still focused on infrastructure, DeFi and emerging Web3 projects, investing in Fei Protocol, Aleo, Yield Protocol, Phantom, Syndicate, Burrata, Aztec Network and other projects. These projects have achieved impressive results and influence in their respective fields.
In 2022, projects in the NFT field have received a large amount of financing, leading investment in NiftyApes, Koop, Formfunction, and participating in excellent projects such as Magic Eden and Oncyber. In that year, it also participated in many current industry-leading infrastructure projects such as zkSync, Aptos, Ceramic Network, and Polygon.
2023 Investment Project
In the first half of this year, Variant Fund invested in a total of four projects, mainly in some basic fields. Except for the project Botto, which is related to the hottest artificial intelligence at the moment, it has not made any major investment moves or changes in direction.
Botto
Botto is an artificial intelligence artist who will draw inspiration from various outstanding works in art history and generate new works of art through artificial intelligence learning. At the beginning of its birth, Botto airdropped governance tokens for NFT creators and collectors on various platforms. Members of the Botto community can vote for the 350 works created by Botto every week to determine the final works and the creation style of artificial intelligence. Through this method, community members can deeply participate in the artistic creation process in an easy way.
Botto's works are also doing very well in the market. At the beginning of 2022, the turnover of SuperRare will exceed one million US dollars.
Botto has been online for some time in the crypto art field, but has not publicly received financing. Although Variant Fund may be somewhat affected by the recent artificial intelligence boom, it sees the potential of Botto in the fields of AI and blockchain. But its innovative and artistic characteristics are the reasons why Botto has high investment value in the field of encrypted art.
3.6.3 Future investment direction
Variant Fund focuses 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 entrepreneurship, and select 20 founders or teams , to support them at an early stage. "Variant Founder Fellowship" is an important initiative launched by Variant Fund, which aims to provide support for early-stage Web3 founders and provide them with more opportunities and resources in the early stage. The launch of this accelerator program fully reflects Variant Fund's attention and support to the encryption field, and also demonstrates the institution's support and encouragement for the younger generation of entrepreneurs.
Secondly, the Variant Fund team has successively 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 investment portfolio together, allowing them to build and learn together. In this way, Variant Fund injects more vitality and motivation into the innovation and development of the encryption field, and also provides more opportunities and resources for young entrepreneurs.
In an industry as new and fast-growing as the crypto space, domain experts are often the builders at the forefront of innovation. Variant Fund advocates a network-based peer learning model, and believes that this is the most effective way to explain the "excellent examples" that emerged during the construction of Web3, and through the Variant Network, it has effectively promoted its development in product design, token strategy, and supervision. Questions and other topics of learning. We believe that Variant Fund will continue to promote development and innovation in the crypto space, providing young entrepreneurs with more opportunities and support.
Overall, Variant Fund maintains a relatively stable investment strategy while adhering to its open, collaborative, and innovative investment philosophy. It is committed to providing funds and support for high-quality projects in the encryption field, and promoting the development and application of encryption technology.
4. Summary
In this report, we take an in-depth look at some of the major players in the crypto VC industry, including a16z, Multicoin Capital, Paradigm, Mechanism Capital, Polychain, and Variant Fund. They adjust their investment strategies on an original basis to adapt to changing market and technology trends, such as:
a16z has rich investment experience and a wide range of investment portfolios. It has long been concerned about emerging blockchain projects and cryptocurrency innovations, and supports the seed investment of start-up companies. They will continue to value the long-term value of the project in the future and may continue in layout in the field of AI;
Multicoin Capital, as a paper-driven investment company, 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, and turn its attention back to infrastructure in the volatile market fields, and on this basis, look for innovative projects with disruptive potential, such as projects in the fields of artificial intelligence and games;
Paradigm is a young but emerging company. The company is committed to long-term investment and innovative project discovery. In the future, it will continue to cooperate with developers and entrepreneurs to provide technical support, business development and strategic guidance for investment projects, helping these projects realize business and sustainable development;
Mechanism Capital continues to focus on the DeFi and gaming fields, and may invest in projects that can combine traditional finance and cryptocurrency markets in the future, bringing more opportunities and liquidity to the cryptocurrency market;
Polychain Capital, as a large and leading cryptocurrency investment company, will maintain a stable investment strategy in the future, and on this basis will diversify the investment portfolio to reduce risks and maintain competitiveness in the market;
As a new emerging fund, Variant Fund focuses on early-stage encrypted asset investment, technical strength and market prospects. In the future, they will focus on the younger generation of entrepreneurs and continue to establish close cooperation with experts and entrepreneurs in the field.
Going forward, we will continue to follow and track the ongoing development and investment strategies of crypto funds, not just the six institutions mentioned in this article, 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 field. Seed investment and investment in emerging projects (such as the field of AI) are still very important, but stability and risk aversion are especially important for larger funds, and permanent development is their topic. Of course, long-term investment, innovative project discovery and technical support are all 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 risk, technical instability, and an uncertain regulatory environment. Therefore, crypto VC companies still need to remain flexible and perceptive to respond to market changes and opportunities. Accordingly, with the improvement of the regulatory environment and the increased acceptance of crypto assets by investors, the crypto VC industry will further mature and develop.
Understanding the investment direction and trend of crypto VC is very important for investors and entrepreneurs, and we look forward to seeing these VCS continue to create value in the field of crypto and blockchain, and make greater contributions to the development of the crypto ecosystem.
Investment Details（2022.06-2023.06）：
https://www.notion.so/6-VC-42196768f0e947469feef27fb7a1e749?pvs=21
References：
https://dune.com/shogun/perpetual-dexs-overview
https://twitter.com/0xsurferboy/status/1665780567491870726
https://twitter.com/moomsxxx/status/1666496011165134848
https://www.theblockbeats.info/news/37009
https://www.odaily.news/post/5186632