Encrypted VC at a glance: Who is empowering the brand and who is providing added value?

Time:2022-01-23 Source: 856 views Trending Copy share


Crypto VC is often seen as vague to the outside world, and is considered by many to be one of the most competitive and brutal branches of the crypto space.

Encrypted VC at a glance: Who is empowering the brand and who is providing added value?

Crypto VC is often seen as vague to the outside world, and is considered by many to be one of the most competitive and brutal branches of the crypto space. New funds popping up, fast-paced funding rounds, the recent tweet (by a disgruntled founder) of a “vulture capital” fund (not allocating resources, but hoping to funds for transactions), leading some founders today to avoid taking funds from pure exchange funds and instead partner with a large network of angel funds or DAOs.

Whenever I think of who has traditionally succeeded with crypto primitives, I always think of an extremely exciting famous scene in the movie "Margin Call" (It's exciting because it should reflect what happened before Lehman Brothers in 2008). In this scene, Jeremy Irons plays a great CEO who understands only the most important things and doesn't understand the rest. Just as the market was about to crash, he told his colleagues: "Why (I am) making so much money?"

"If I told you that there are three ways to make a living in this business, what would it be?" he asked knowingly.

"The first is to be smarter and cheat."

This heuristic (with a little modification) can work for most crypto funds you've probably heard of. Now, however, a new framework has been proposed that can help us understand these funds, which can be grouped into three categories. As Richard Malone, Head of Operations at Advanced Blockchain AG, said in his eloquent words, the current funds are divided into three basic categories: Brand Funds, Specific Value Add Funds, All-Purpose Service/ Value Add Funds (often started and conducted as incubators and accelerators). I will add some nuances and subcategories to this classification to further clarify the classification of these funds.

Encrypted VC at a glance: Who is empowering the brand and who is providing added value?

Quick Facts About Crypto Ventures

You can think of those funds that were first launched as Brand Funds. They have their own roster, they have their own big-name investors; they have an LP base that will always be there; they are well-known funds. Getting investment from these funds is the equivalent of attending an Ivy League college, owning the most exclusive Hermès Birkin or a Bugatti, etc. These Brand Funds became self-fulfilling prophecies — when other funds heard they were investing, they would try to join the deal, triggering an unprecedented FOMO that in turn brought in more resources and created a network effect. (This is not a new phenomenon, nor is it in traditional venture capital.)

Like stereotypes, Brand is important because they tend to be immersed in reality, but Brand isn't everything. If people are going to criticize Brand Funds, it's that criticizing Brand Funds is sometimes seen by others as "paying off." Also, over time, economies of scale make early-stage deals less likely for Brand Funds. The larger the AUM, the smaller the amount of checks they write. Recently, Paradigm said it would not write checks for amounts less than $2 million. This automatically eliminates the vast majority of pre-seed transactions from the market.

At times, Brand is also associated with the Twitter profile and the general partnership cult of personality, things that tend to be only superficial indicators in actual business activity. I once interviewed an investor-turned-operator and asked her why she did this. She replied that she didn't want to get involved in "a dirty fight between Twitter thought leadership." She speaks so well!

Let's talk about who comes first and why order matters. I love thinking about cryptocurrencies and I love watching mafia movies, so I've been thinking lately about who are the Big Five (or, for us, the Big Four) in crypto. If cryptocurrency is a mafia organization, as we all know it (you know), then who will be the most VIP fund of all VIP funds?

For me, the answer is obvious.

Blockchain Capital is a "veteran fund" with roots dating back to 2013, with Brock Pierce being one of its three founders. This big brand, commonly known as "BCap" in colloquialism, has one of the largest AUMs in its field, and it has some of the biggest success stories.

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