4D analyzes the investment profile and strategic layout of six top crypto VCs
Original author: Betalpha Labs
1. Overview
With the rapid development of blockchain technology, the cryptocurrency and decentralized finance industries are growing steadily, driving the rapid growth of the crypto venture capital industry. Crypto Venture Capital firms (Crypto VC for short) are a type of venture capital firm that specializes in investing in the cryptocurrency and blockchain sectors. They provide funding and resources to startups and projects to drive the development and innovation of blockchain technology. Crypto VCs are becoming an important force in the venture capital industry.
This article will discuss the crypto venture capital industry, with a focus on analyzing six top crypto VC firms, including a16z, Multicoin Capital, Paradigm, Mechanism Capital, Polychain, and Variant Fund. It will explore the following aspects of these firms in the industry:
1. Overview of each VC firm: This section will introduce the basic information of the six crypto VCs, including their background, team composition, investment strategies, etc., to provide readers with a holistic understanding of each firm;
2. Historical investment analysis: This section will provide a detailed analysis of the historical investment projects of each crypto VC, including investment sectors, investment rounds, investment amounts, etc., to reveal the investment focus and trends of each firm;
3. Investment case studies: This section will select typical investment cases of each crypto VC and delve into the logic and values behind the investments, showcasing the investment capabilities and perspectives of each firm in different fields;
4. Future development predictions: This section will make predictions about the future development direction of the six crypto VCs, taking into account the development trends of the global crypto market, and provide possible market opportunities and challenges as references for investors and industry practitioners.
This article aims to provide readers with a detailed understanding of the crypto VC industry through the detailed exposition of the above content and offer valuable insights for investors and market observers.
(The analysis firms selected in this article do not represent any ranking and are only provided as references for the capital framework and templates for the article. Other capital firms can refer to the above templates for analysis. In the future, we will also continue to pay attention to changes in the investment strategies and strategic development layouts of various VCs in the industry.)
2. Overall Analysis of the Crypto VC Market
The crypto investment industry, as an emerging and rapidly developing field, has experienced rapid growth and changes in the past few years. Overall, this industry is in good health, with investment scale and innovation activities continuing to grow, providing strong support for the development and innovation of the crypto sector.
Among the top 50 cryptocurrency venture capital firms globally, the San Francisco Bay Area occupies a 45.2% market share in terms of managed capital, exceeding $26 billion, which is nearly equivalent to the sum of all other cities worldwide.
When comparing data from two bear market periods, we can see that the amount of venture capital invested in cryptocurrency companies has increased 3.1 times compared to the same period four years ago (January to February 2019). During this period in 2019, the investment amount was $471 million, while this year's data reached $1.45 billion. This means that even during deep bear markets, venture capital firms are still investing over $25 million in equity in cryptocurrency companies per working day.
Compared to the six crypto VCs discussed in this article, these six institutions made a total of 36 investments throughout the entire year in 2019, while in the first half of 2023, they have already completed 49 investments, which also proves the aforementioned fact that the overall crypto ecosystem is improving.
Except for Paradigm and Polychain Capital, the peak number of investments for the remaining four funds occurred in 2022. Among them, a16z is one of the most active investors, with 73 investments. Multicoin Capital, Mechanism Capital, and Variant Fund also achieved high investment counts in 2022.
In 2022, these investment firms mainly focused their investment activities on the DeFi and infrastructure sectors. In comparison, a16z, Paradigm, and Variant Fund also paid more attention to the NFT sector. In addition, a16z and Mechanism Capital invested heavily in gaming projects, while Paradigm focused more on the CeFi sector. These investment firms have a wide range of investment areas and directions, covering multiple sectors and sub-sectors in the crypto field, in order to build a healthier crypto ecosystem.
These investment firms also have relatively flexible investment strategies. While investing in startups, they also invest in mature crypto companies or collaborate with other investment firms for joint investments. This diversified investment strategy allows them to better seize market opportunities and risks and achieve better investment returns.
It can be noticed that the proportion of projects led by a16z and Paradigm is relatively high, and most of the investment projects have a financing scale of more than $50 million. Meanwhile, Mechanism Capital and Variant Fund may be more involved in early-stage projects, such as seed rounds and angel rounds, so the investment amount is relatively lower and the investment is more flexible.
The difference in investment strategies is mainly due to the investment styles and advantages of different crypto VC companies. Large VC companies like a16z, Paradigm, and Polychain usually have richer resources and experience, which enables them to 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 capital and resources. Therefore, they often pay more attention to 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 nurture projects with real potential.
In addition, smaller funds are usually founded by experienced investors or industry experts, making them more likely to choose investment projects based on their personal preferences and experiences. These experienced investors typically have a deep understanding and insight of the crypto market and can discover projects that may be overlooked by large VC companies.
It is worth noting that this is only a typical investment strategy of crypto VC companies and does not represent that they will remain unchanged. With the continuous development and changes in the crypto market, the investment strategies of different crypto VC companies will also be continuously adjusted and optimized to better adapt to market demands 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, 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 investments, innovative investment methods, and a commitment to providing strategic guidance and resource support to its invested companies, helping them achieve long-term development and success. The company's investment portfolio includes many well-known tech companies, such as Airbnb, Facebook, Slack, Lyft, PagerDuty, Pinterest, etc.
a16z is also one of the important investment institutions in the cryptocurrency field. As early as 2013, it started investing in Bitcoin and blockchain technology. Its early investments in the cryptocurrency industry include Coinbase, Ripple, BitGo, and 21 Inc, among others.
In recent years, a16z has also been closely following the development and innovation in the cryptocurrency field, actively exploring new investment opportunities and strategies. It has invested in many other cryptocurrency projects such as Uniswap, Compound, dYdX, Solana, Celo, Dfinity, Flow, Arweave, Near, and more. These projects are innovating and breaking through in different directions, providing new ideas and possibilities for the development of the entire cryptocurrency field.
In addition to investment activities, a16z also plays an important role in strategic guidance and resource support in the cryptocurrency field. The company has established a dedicated cryptocurrency fund and hired professionals with rich experience and knowledge in the cryptocurrency field to provide comprehensive assistance and support to the invested companies. Furthermore, the company regularly publishes research reports and analysis on the cryptocurrency field, providing valuable reference and guidance to the entire industry.
3.1.2 Yearly Investment Project Comparison
In the past two years, with the entry of the cryptocurrency bear market, the number of investments by many investment institutions has significantly declined, and a16z is no exception.
In the early stages of entering the cryptocurrency market, a16z mainly invested in areas such as infrastructure, exchanges, and wallets.
As early as 2013, a16z led the Series B funding round of Coinbase, a leading CeFi institution in the market today, and continued to participate in its funding in 2018. Coinbase has now become one of the largest cryptocurrency exchange platforms globally, with millions of users and billions of dollars in transactions. In addition to Coinbase, a16z also invested in many other blockchain and cryptocurrency projects. For example, the DeFi project dYdX in 2017 was one of them, where a16z organized and led its seed round and made additional investments in 2018. In the new Series A funding round, a16z successfully raised $10M for dYdX and we can still see the presence of a16z in its Series B funding in 2021. Furthermore, a16z led the investment in MakerDAO in 2017 and led three consecutive rounds of investment in Compound, a cryptocurrency lending project, in 2018, 2019, and 2020. Additionally, a16z led three rounds of investment in the Celo project in 2018, 2019, and 2020.
With the development of the crypto market, a16z has increased the frequency and amount of investments in the crypto field in the second half of 2020 and 2021, gradually shifting its focus to emerging areas such as DeFi and NFTs.
Due to its model of discovering new projects and exploring new strategies in the crypto field, a16z chose to adopt a token-based investment strategy in Uniswap.
As a whale player in Uniswap, Andreessen Horowitz holds 15 million UNI tokens and has a huge influence in every public vote of the project. Due to the custody settings of its tokens, a16z's voting results cannot be known during the token popularity check, meaning that the participants in the vote cannot know a16z's voting results. A spokesperson for a16z confirmed that the company plans to participate in any on-chain voting. Because of its immense influence in the project, a16z's voting behavior is closely watched. Although there are various opinions in the market, it also reflects a16z's influence and position in the crypto field, while reminding the entire crypto community to remain vigilant and avoid any market manipulation.
The peak of a16z's annual investment frequency occurred in 2022. In addition to continued attention to the gaming industry and increased investment in infrastructure projects, a16z began to focus more on innovative Web3 projects and the NFT field. On the other hand, investments in the CeFi field decreased. In the first quarter of 2022, a16z led the seed round of Yuga Labs, enabling the project to raise $450 million at a valuation of $4 billion, making it one of the highest-funded projects in the NFT and metaverse fields in recent years. Additionally, a16z participated in leading the A and B rounds of funding for Opensea, establishing its position in the NFT trading market.
2023 Investment Projects
In addition to investing in infrastructure and gaming metaverse projects, a16z has also maintained its focus on emerging areas, including the expanding applications of artificial intelligence, and seizing investment opportunities.
From the latest two investment projects, Worldcoin and Gensyn, it is evident that a16z's focus has shifted significantly. In addition to the ongoing attention to projects in the traditional crypto market, there is a tendency to shift the focus to the AI field.
Worldcoin
Worldcoin is a crypto project founded by Sam Altman, the founder of OpenAI. Since most people in the world currently cannot verify their identity digitally, Worldcoin's vision is to build the largest and fairest global digital identity and currency system. This is to help everyone enter the global financial system. In addition to a16z, well-known investment institutions such as Coinbase, Multicoin Capital, and 1confirmation have also participated in the investment. The founder of LinkedIn, SBF, the founder of Mirror, multiple Ethereum projects, Polkadot, and the Web Foundation founder have also participated in the angel round investment. There have been two rounds of financing totaling $125 million, and it is currently seeking an additional $100 million in financing.
Gensyn
Gensyn is a decentralized AI computing network that uses blockchain technology to verify the completion of deep learning tasks 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 invests in Gensyn is because they believe that this project has tremendous potential and can solve some existing problems in the field of artificial intelligence. For example, traditional cloud computing models often require a lot of time and resources to complete AI training, while Gensyn takes advantage of the benefits of blockchain technology, enabling efficient allocation and utilization of computing resources. Gensyn also has the advantage of decentralization, meaning 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 align with a16z's criteria when seeking investment opportunities.
3.1.3 Future Investment Direction
Compared to other VCs, a16z continues to focus on the development of the crypto market even in a bear market and actively invests in this field. They announced a new cryptocurrency fund in 2022, which aims to support emerging blockchain projects and cryptocurrency innovations. $1.5 billion in the fund will be dedicated to seed investments in Web3 startups.
This fund will provide funding and resources for startups to help them establish a sustainable crypto ecosystem. In addition to financial support, a16z will also provide these companies with business advice, technical support, and help with marketing and promotion.
a16z's past investments in the cryptocurrency field cover various aspects, including decentralized finance, digital identity verification, cryptocurrency exchanges, and mining, among others. These investments have not only driven the development of cryptocurrencies and blockchain technology but also brought substantial returns for a16z itself. Artificial intelligence is currently one of the hottest technology fields, with wide-ranging applications in healthcare, finance, manufacturing, and other sectors. By combining blockchain technology with AI, more innovative applications and business models can be created, providing further investment opportunities for the crypto VC industry.
a16z's investments in the AI field also include other projects, such as Suki.AI, which provides AI solutions for enterprises, and Freenome, which utilizes machine learning technology to improve healthcare efficiency.
In summary, a16z has completed 13 investments this year, indicating their continued focus on emerging technologies and trends and their search for promising projects to invest in. They believe these fields will become important trends in the future and are committed to contributing to their success. a16z's investments and actions in the crypto field have not only brought substantial returns for the company itself but also injected new vitality and momentum into the entire industry. In the future, a16z will continue to focus on the development and innovation in the crypto field, actively exploring new opportunities and strategies, and contributing to the long-term development of the entire industry.
3.2 Multicoin Capital
3.2.1 Introduction
Multicoin Capital was founded in 2017 by three founding partners and is focused on researching and investing in blockchain technology, cryptocurrencies, decentralized applications, and related emerging technologies and trends.
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 field represents a long-term investment opportunity. Therefore, the company emphasizes a long-term investment strategy, holding and supporting companies and projects that have a leading position in technology and the market.
In addition, they also value the values and social impact of investment projects. The company gives priority to projects that have social significance and values and avoids investing in projects that may have negative social and environmental impacts. At the same time, the company places great importance on the qualities and capabilities of the team and management to ensure the success of investment projects.
The investment portfolio of Multicoin Capital is very diverse, covering various fields including infrastructure, applications, protocols, decentralized finance, gaming, artificial intelligence, etc., but most of the investments are still concentrated in infrastructure and DeFi projects. Some of their notable investment projects include Solana, The Graph, Portals, Arweave, StarkWare, etc.
In addition to investments, the firm is also committed to providing investors with the latest information and insights on cryptocurrency and blockchain technology, as well as advice and guidance on investment and trading. Multicoin Capital regularly publishes reports and articles covering various topics including market trends, technological innovations, investment strategies, etc., providing investors with valuable guidance.
3.2.2 Yearly Investment Project Comparison
In the initial years of entering the cryptocurrency industry, Multicoin Capital primarily focused on infrastructure investments. They participated in the seed round investment of Solana in 2018 and led the Series A financing of Solana in 2019, which is a project aimed at improving blockchain scalability and user-friendliness. Additionally, Multicoin Capital also participated in the Series A financing of StarkWare, a project focusing on enhancing blockchain privacy and scalability. In 2019, they also led the seed round financing of The Graph, a protocol for decentralized network querying and indexing.
Multicoin Capital has shown a high level of professionalism and keenness in infrastructure investments. They saw the future potential in these projects and injected capital to support their development. These investments have not only earned Multicoin Capital significant returns but also made important contributions to the overall development of the cryptocurrency market.
Over time, the investment focus of Multicoin Capital has gradually expanded and upgraded from infrastructure investments to broader areas such as decentralized finance, artificial intelligence, gaming, and Web3. Whether it is in infrastructure investments or investments in other areas, Multicoin Capital has consistently maintained a high level of professionalism and insights, making important contributions to the overall development of the cryptocurrency market.
For example, starting from 2020, Multicoin Capital has increased its focus and investment in the DeFi sector, making 17 investments in the related field in just one year in 2021. This includes Perpetual Protocol, Oxygen, Beta Finance, etc.
In addition to the DeFi field, Multicoin Capital has also made significant 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 firm has been an investor in FTX and FTX US. Multicoin Capital's investment in FTX and the related Solana industry did suffer losses. Especially with FTX, as one of the largest CEXs and a key project that Multicoin Capital had focused on and invested in, the sudden bankruptcy event was unexpected by everyone.
2023 Investment Projects
In the first half of this year, Multicoin Capital invested in a total of 6 projects, mainly focusing on infrastructure and Web 3 projects. Four of these projects were led by Multicoin Capital, in the areas of wallets, security solutions, DeFi (MEV), and DAO solutions. These projects are all applications based on blockchain technology, covering multiple domains such as cryptocurrencies, DeFi, security, and DAOs, with high technical content and market potential. Multicoin Capital's investment strategy in the crypto VC industry is gradually taking shape.
TipLink
TipLink is a project led by Multicoin Capital and Sequoia Capital, with participation from Solana Ventures, Circle Ventures, Paxos, and others. As a lightweight wallet, TipLink aims to make transferring digital assets as simple as sending a link. The non-custodial wallet allows users to have full control over their assets by connecting their Gmail account or Solana wallet. Users with cryptocurrencies can create this wallet and send the link to anyone through any platform (text, discord, email, etc.). In this application, 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 existing blockchain users can receive digital assets and have full control over them through the link. Using TipLinks and Solana Pay, it is possible to establish a direct relationship with customers through peer-to-peer payments. There is no need to worry about transaction fees, frozen funds, or refunds.
3.2.3 Future Investment Direction
With the continuous development of the cryptocurrency market and the expansion of application scenarios, Multicoin Capital's investment direction is also changing. They are now more focused on building the Web3 ecosystem, especially projects that can improve efficiency, reduce costs, and enhance security. They have also started to pay attention to projects in fields such as artificial intelligence and gaming, and have made some important investments in these areas. Whether it is infrastructure investment or investment in other fields, Multicoin Capital has always maintained a high level of acuity and insight, making important contributions to the development of the entire cryptocurrency ecosystem.
Although Multicoin Capital has indeed slowed down its investment pace in the cryptocurrency field this year, it does not mean that they have given up their attention to this field. On the contrary, they continue to seek new investment opportunities and adjust their investment strategies and portfolios to reduce risks and achieve better investment returns. For example, they are refocusing on the infrastructure sector and 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 industry in the next decade. Therefore, they are actively looking for potential Web3 projects and providing funding and support for these projects.
Of course, Multicoin Capital may continue to focus on the infrastructure sector. 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 founded in 2018 by Fred Ehrsam, co-founder of Coinbase, Matt Huang, former partner at Sequoia Capital, and Charles Noyes, former Pantera Capital. 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, investing funds in projects with long-term potential and establishing close cooperative relationships with these projects to promote the development of the entire industry.
Unlike other VCs, after investing in projects, Paradigm actively participates in and supports the construction of cryptocurrency and blockchain technology communities and ecosystems. They provide strategic guidance, technical support, and business expansion support to projects, helping these projects achieve commercialization and sustainable development.
Paradigm has made many investments in the fields of infrastructure, DeFi, NFTs, and CeFi. The organization continues to monitor the development of various industries in the cryptocurrency field and is committed to providing technical and financial support, as well as operational assistance, to new projects.
3.3.2 Yearly Investment Project Comparison
After entering the cryptocurrency ecosystem, Paradigm focused on infrastructure and DeFi. After leading the Series A funding round of StarkWare, they continued to lead the Series B and Series C funding rounds, maintaining their focus on its development. The same applies to Uniswap, as they have been following the project's development since leading the investment in 2019. They have also participated in its subsequent funding rounds in 2020 and 2022, making it one of Paradigm's successful cases.
In addition to these, Paradigm has also discovered and made long-term investments in a series of leading projects in the cryptocurrency ecosystem, such as Optimism, Cosmos, Argent, Reflexer, Yield Protocol, and Axie Infinity. The development of these projects fully demonstrates Paradigm's long-term investment philosophy and strategic investment approach.
Starting in 2021, Paradigm has increased its focus and investment in the areas of DeFi, NFTs, CeFi, and gaming, gradually expanding its investment scope within the cryptocurrency ecosystem. In addition to investments, Paradigm actively participates in the construction and promotion of the blockchain ecosystem, providing corresponding support to these projects.
For example, in the CeFi field, Paradigm led the Series A funding round for Coinswitch in 2021 and participated in the Series D funding round for Bitso. Coinswitch is currently the most popular cryptocurrency application in India, while Bitso is the largest cryptocurrency exchange in Latin America. These were Paradigm's first investments in cryptocurrency exchanges after entering the cryptocurrency ecosystem. In the same year, Paradigm also participated in some projects in the NFT, DeFi, and gaming sectors, such as Opyn, Synthetix, dYdX, Zora, Royal, and Axie Infinity.
Paradigm continues to be bullish on infrastructure and NFT-related areas in 2022 and is beginning to explore new Web3 projects. They aim to uncover new gameplay for the entire crypto ecosystem and persist in continuous development. They kicked off by investing in key institutions and companies in the NFT space, such as Opensea, Magic Eden, and Limit Break, all of which hold significant positions and influence within the NFT ecosystem. They also invested in two crypto wallet projects, Argent and Phantom, both of which are leaders in cryptocurrency storage and management. Additionally, to provide opportunities for more new projects, they invested in various innovative Web3 ideas. For instance, Jambo is an education-related industry, and these new projects may play an important role in promoting the application of cryptocurrency and blockchain technology in the future.
2023 Investment Projects
In the first half of 2023, Paradigm only participated in and led two projects: the security solution Code 4 rena and the infrastructure platform Conduit. In the bear market of the cryptocurrency market, Paradigm changed its previous diversified investment layout and adopted a more conservative investment strategy. They chose to focus on the infrastructure sector during the market downturn to reduce the error rate and made smaller investments. The current funding amounts for these two projects are $6 million and $7 million, respectively.
Code 4 rena
Code 4 rena is a web3 security audit platform. The security audit competition is different from traditional auditing and bug bounty programs. It provides a broader coverage scope for protocols and ensures payment to participants. Participants in the arena include Guardians, who protect the DeFi ecosystem by auditing code, Sponsors, who create prize pools to attract wardens to audit their projects, and Judges who determine the severity, efficacy, and quality of investigation results and evaluate wardens' performances. As a competitive audit platform, Code 4 rena can discover more high-severity vulnerabilities faster than any other auditing method.
Code 4 rena is constructed by a leading industry expert team and aims to protect projects and communities by providing opportunities for the world's best security researchers and smart contract experts. Conduit
Conduit is an encrypted native infrastructure platform designed to support and accelerate builders in the encryption field. Its first product allows teams to scale their applications by about 100 times, enabling them to launch production-level aggregations based on the OP Stack in a short period of time. Infrastructure professionals manage, launch, and scale application-specific aggregations on Conduit, allowing teams to 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, providing a better user experience and unlocking new use cases that were previously not possible due to network congestion.
3.3.3 Future Investment Direction
The timely adjustment of Paradigm's investment strategy demonstrates its keen insight and responsiveness to market trends, as well as its fundamental judgment of the current ecosystem. Despite the market downturn, the development of infrastructure remains one of the important factors for maintaining the stability and healthy growth of the crypto ecosystem, and it is also a manifestation of Paradigm's long-term investment philosophy.
In the future, Paradigm may also engage in new areas to seek new investment opportunities and promote the development of the entire crypto ecosystem. For example, the currently discussed artificial intelligence (AI) industry, which incorporates blockchain technology and AI technology, is likely to become a focus of Paradigm's attention. In the past few years, the application of AI technology in various industries has become a trend. With the continuous development and application of blockchain technology, the integration of AI and blockchain technology has become a new research hotspot and investment direction. For example, some blockchain projects are exploring how to use AI technology to improve the efficiency and security of blockchain systems, as well as how to apply blockchain technology to the field of AI.
Paradigm likes to make long-term investments and discover innovative projects. The AI sector is in its early stages of development, which aligns with Paradigm's investment philosophy and enables them to participate in project communities and ecosystem development and provide timely assistance.
Paradigm may seek opportunities in these emerging areas and provide technical support, business development, and strategic guidance to help these projects achieve commercialization and sustainable development. In this way, Paradigm may further promote the development of the crypto ecosystem and gain more returns in future investments.
3.4 Mechanism Capital
3.4.1 Basic Introduction
Mechanism Capital is an investment company focused on cryptocurrency and blockchain technology, established in 2018. As an emerging VC, Mechanism Capital is more flexible and innovative, with a focus on small fundraising amounts. They not only pay attention to the quality and growth potential of investment projects, but also to the overall development of the blockchain ecosystem, actively promoting industry innovation and development.
The company states on its official website that although they are interested in various aspects of the crypto ecosystem, their main focus in the early stages of investment is in the DeFi and infrastructure sectors. In the following years, as the company stabilizes its operations, they will gradually expand their investment portfolio to include gaming and NFT sectors. For example, they raised $100 million in early 2022 to establish a gaming fund, enabling more comprehensive investment and layout in this space. This can also be seen in their investment layout over the years. They hope to help support the creation of new financial systems and applications on public chains, and through their own participation, enhance the industry's understanding of the value acquisition, incentives, and mechanism design of crypto assets.
The team members have deep technical backgrounds and extensive industry experience. They are committed to contributing to the development and innovation of the blockchain ecosystem by investing in and supporting promising projects, helping these projects achieve commercialization and sustainable development.
One of the co-founders, Andrew Kang, previously served as the Director of Investments at Bitcoin investment company Ledger Capital, responsible for the management and strategy of blockchain and cryptocurrency investment portfolios. He is also an advisor and investor in multiple cryptocurrency projects. Another co-founder, Vance Spencer, has worked in several well-known financial institutions such as Goldman Sachs and JPMorgan Chase. He has a strong financial and investment background and is also a co-founder of blockchain investment company Framework Ventures.
Mechanism Capital states that they are less influenced by external investors, allowing them to flexibly invest in non-traditional project concepts and have the ability to continuously invest financial and human capital to support the ecosystem from the first day of investment.
3.4.2 Comparison of Historical Investment Projects
Mechanism Capital tends to favor small investments, which has been evident since their entry into the crypto market in 2020. In the full year of 2020, the highest fundraising amount they participated in was in SifChain's seed round, raising a total of $3.5 million. The fundraising amounts for other projects ranged from $1.2 million to $3.1 million. Although there were many large fundraising projects in the market during the same period, Mechanism Capital did not participate in these fundraisings. They prefer to diversify risks across multiple projects and sectors through small investments, and increase investment amounts when needed.
2021, Mechanism Capital began to focus its investment on DeFi projects, consistent with what they claimed on their official website. That year, they invested in 15 DeFi projects, most of which were financed through participation. Among these projects, asset management platform Set Protocol received the highest amount of funding, reaching $14 million. The second highest was cross-chain aggregator project XY Finance, which received $12 million in funding. In addition, infrastructure projects also received favor from Mechanism Capital, with a total of 10 infrastructure projects receiving funding throughout the year, including leading the Series A investment of XDEFI, leading investments in Nameless and Biconomy, and multiple investments in Burnt. These investment activities indicate that Mechanism Capital is gradually defining its investment direction and seeking potential projects to invest in.
In 2022, besides continuing to focus on the DeFi field, Mechanism Capital invested in the highest number of game projects. That year, they invested in 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 allows players to earn money while playing, and the AAA first-person shooter game SHRAPNEL, among others. Additionally, they participated twice in NFT project UpShot, and led the strategic round financing of reNFT, raising $5 million in funding. In terms of infrastructure, they participated in layer-one protocol NEAR Protocol, which also received the highest funding among projects that Mechanism Capital entered the crypto ecosystem. In the DeFi field, they participated in the seed round financing of lending protocol Morpho, and made three consecutive investments in stablecoin protocol Hubble Protocol. Hubble Protocol is a decentralized finance (DeFi) protocol built on Solana, with its core product being USDH, a decentralized stablecoin that allows users to borrow against their crypto assets.
2023 Investment Projects
In the first half of this year, Mechanism Capital invested in a total of four projects, two in the gaming sector, and the rest in DeFi and NFT-related fields. The highest funded project was Avalon, a metaverse project led by Mechanism Capital, which raised $13 million in a funding round, with the remaining projects receiving funding ranging from $1.5 million to $5.5 million.
Avalon
Avalon is a company based in Orlando, Florida that is building a gaming platform aimed at creating an interconnected universe using virtual universe technology. The company was founded by leaders from games such as "Endless Quest," "Call of Duty," "Diablo," "God of War," "Assassin's Creed," and "Elden Ring."
Avalon's gaming platform will connect technologies such as game engines and blockchain to build a virtual universe. CEO Sean Pinoc said in an interview with GamesBeat that while the company doesn't refer to its platform as the "metaverse," they envision a future where people collaborate using tools that make it easy to build worlds and experience these dreams, ultimately creating something similar to a virtual universe.
Avalon's goal is to revolutionize the digital world and ensure that these changes benefit both creators and players. Pinoc noted that engagement is driven by gameplay, creativity, and connections between people, which are all critical elements lacking in most so-called virtual worlds. Therefore, Avalon aims to bridge the gap between a game-built virtual world and build a more realistic and interactive virtual universe through technological integration.
Investment firm Mechanism Capital's investment in the metaverse gaming platform Avalon likely stems from its optimism regarding the future prospects of the metaverse gaming market, recognition of Avalon's company leaders and team members, as well as understanding and awareness of blockchain technology applications.
3.4.3 Future Investment Direction
As stated on their official website, Mechanism Capital may continue to focus on the DeFi and gaming sectors in the future. The firm has relatively rich experience and deep understanding in these areas. The DeFi sector is one of the most popular fields in the cryptocurrency market, offering numerous innovations and opportunities to provide users with safer, more transparent, and open financial services. Additionally, it is one of the sectors with the highest daily participation and a stable user base in the crypto ecosystem. Mechanism Capital may continue to invest in projects that provide innovative solutions in the DeFi space, such as decentralized lending, prediction markets, insurance protocols, which is also the initial goal of establishing the fund. The firm has also established a dedicated fund for the gaming sector to prepare for future investments.
Furthermore, considering the financial backgrounds of the two investors, Mechanism Capital may continue to focus on projects that combine traditional finance with the cryptocurrency market. These projects can bring better efficiency and transparency to the traditional financial industry while also providing more opportunities and liquidity for the cryptocurrency market.
In addition to 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 venture capital company focused on cryptocurrencies and blockchain technology. It was founded in 2016 and is headquartered in San Francisco, USA. The company's founder is Olaf Carlson-Wee, a former engineer at Coinbase and a well-known figure in the cryptocurrency field.
Polychain Capital's investment focus is on projects in the field of cryptocurrencies and blockchain technology, including infrastructure, protocols, applications, ecosystems, etc., such as Avalanche, Arbitrum, Uniswap, Coinbase, Connext, SPACE ID, etc.
Polychain Capital's investment philosophy leans towards early-stage and risk investments. They invest significant amounts in most of the projects they participate in. They often invest in projects at the early stages to maximize their returns. Early-stage investments also help them better understand the projects and establish close collaborations with them. In addition to high returns, they also value unique, practical, and innovative projects, believing in their investment vision and the great development potential of these projects.
In addition to investments, Polychain Capital actively participates in the construction and promotion of the blockchain ecosystem. They provide support in areas such as technical support, business development, and strategic guidance to these projects, helping them achieve better commercialization and sustainable development. They also actively engage 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 inception, Polychain Capital has shown a clear inclination towards investing in the infrastructure and DeFi sectors, with the majority of its investment amount focused on these two areas. Projects invested by Polychain Capital in the infrastructure sector include blockchain operating systems, distributed storage, cross-chain protocols, etc., which are critical projects that provide support and infrastructure for the entire cryptocurrency market. At the same time, the projects in the DeFi sector are also impressive, including decentralized exchanges, stablecoin protocols, lending protocols, etc., which can provide users with more secure, transparent, and open financial services.
As early as 2017, Polychain Capital led the investment in leading stablecoin protocol MakerDAO, decentralized exchange dYdX, and also participated in cross-chain protocol Polkadot and decentralized trading infrastructure project 0x.
In 2018 and 2019, Polychain Capital continued to allocate the majority of its funds to the infrastructure sector, investing in a series of projects such as Avalanche, Celo, Nervos Network, and Dfinity. In addition, it also participated in Coinbase's Series E financing.
In 2020, Polychain Capital did not accelerate its investment process, but unlike its previous investment focus, due to the rise of the decentralized finance sector, the organization's investment in DeFi projects accounted for 45% of the total for the year, followed by the CeFi sector, while investments in infrastructure projects were put on hold, with only three projects receiving funding from the organization throughout the year.
In 2021 and 2022, the organization returned to its previous investment style, with a continued focus on the infrastructure sector, followed by the DeFi sector. In terms of infrastructure, it led investments in many projects such as Solana, Connext, Avalanche, Scroll, AltLayer, EigenLayer, Celestia, etc., with the organization mainly participating as a lead investor in most of these projects. Of course, it also participated in well-known projects such as Arbitrum, Evmos, Gauntlet, etc. In the DeFi sector, it is also a leader in outstanding projects like Uniswap.
2023 Investment Projects
By the end of June 2023, Polychain Capital has invested in a total of 15 rounds, maintaining its consistent style of investing in infrastructure. Among these 15 projects, 10 of them were led by Polychain Capital and focused on seed rounds, Series A rounds, and strategic rounds. However, unlike other investment firms, Polychain Capital did not immediately shift its focus to the AI field and its derivatives. Instead, it continued to invest mainly in traditional relevant sectors within the industry, including blockchain (EigenLayer, Berachain), cross-chain communication protocols (Connext), decentralized finance, derivatives (Thetanuts Finance, Coral Finance), and data privacy (Webb).
Berachain
Berachain is an EVM Layer-1 blockchain built using the Cosmos SDK. It specializes in DeFi and is compatible with EVM. It is supported by liquidity consensus proof.
The development team of Berachain recognized that one of the common problems in current L1 blockchains is liquidity. Therefore, they designed a liquidity consensus proof (Proof of Liquidity) to attract and retain assets. Users can pledge whitelist assets such as BTC, ETH, and stablecoins in the validator insurance pool and receive a portion of DeFi protocol revenue and BERA as rewards.
Berachain implements a three-token economic model consisting of BERA, BGT, and HONEY. BERA is the gas token of Berachain, serving as a medium of pricing and execution. BGT is the governance token of Berachain, allowing voting for new whitelist assets. HONEY is the USD stablecoin of Berachain, used as a payment method for protocol revenue. This economic model, referred to as "Tri-Token," aims to encourage users to use Berachain in the long term and maintain consistent on-chain liquidity. The liquidity consensus proof and three-token economic model of Berachain contribute to faster transaction speeds, lower transaction costs, immediate finality, and abundant liquidity for DeFi on Berachain.
In late April of this year, Berachain completed a $42 million financing round, led by Polychain Capital. Other participants include Hack VC, dao 5, Tribe Capital, Shima Capital, Robot Ventures, Goldentree Asset Management, and OKX Ventures.
3.5.3 Future Investment Direction
As a relatively large and conservative investment institution, Polychain Capital may make some minor adjustments to its investment direction in the cryptocurrency field in the future, but the overall investment strategy and focus are unlikely to undergo significant changes. They will still concentrate on infrastructure and DeFi.
Of course, for better business models and future development, Polychain Capital may pay more attention to the early value and sustainability of a project, and seek projects with good business prospects and development models to ensure investment returns.
Diversification of the investment portfolio may be their next focus. Although Polychain Capital has achieved many successful investments in their familiar areas, they also understand that diversifying the investment portfolio is crucial to maintaining competitiveness in a rapidly changing market. Therefore, Polychain Capital may seek investment opportunities in other fields related to the cryptocurrency industry, such as artificial intelligence, big data, and the internet of things.
Although Polychain Capital currently does not show particular concern for the field of artificial intelligence, the combination of artificial intelligence and blockchain technology is a highly watched area, and almost all investment institutions pay great attention to this track and invest in promising projects. These projects may include artificial intelligence applications that use blockchain technology to protect data privacy or internet of things applications that use smart contracts to manage supply chains.
Big data analysis is also an important area, and there is great development potential for projects that use big data analysis to improve the efficiency and accuracy of cryptocurrency trading. 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 summary, diversification of the investment portfolio is crucial to maintaining competitiveness. Polychain Capital may focus more on investment opportunities in other fields related to the cryptocurrency industry while maintaining a conservative investment attitude, providing more choices for portfolio diversification and risk control.
3.6 Variant Fund
3.6.1 Basic Introduction
Variant Fund is an early-stage cryptocurrency investment fund that focuses on investing in and supporting innovative cryptocurrency and blockchain projects.
This company was founded in 2020 by Jesse Walden and Li Jin, both experienced investors in the cryptocurrency and blockchain field. Jesse Walden was the investment partner for a16z's first crypto fund and later led the a16z crypto accelerator program called "a16z Crypto Startup School" for twelve weeks. It is known that Jesse led Variant's investments in projects such as Uniswap, Phantom, Mirror, Flashbots, and Foundation. Li Jin, the other co-founder of Variant, also came from a16z but was part of the consumer investment team. The two founders have little overlap 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 like Yield Guild Games and DAO platform Syndicate.
In July 2022, when the crypto market entered a cold winter, Variant Fund announced the launch of a fund with a staggering $450 million. This is the third fund launched by Variant Fund since its inception in 2020. The fund size has increased by more than 4 times with each launch, from the initial $2.25 million fund to the early-stage $110 million fund launched in October of the following year. The company's growth rate has attracted industry attention.
Variant believes that cryptocurrencies will become the foundation of user-owned networks, where products and services will transform their users into owners. The focus on vertical segments by their investment team also reflects their attention to specific areas in the crypto industry.
In addition to investments, Variant Fund also shares industry news, trends, and investment insights through the Variant Newsletter to increase transparency and understanding in the industry.
3.6.2 Comparison of Investment Projects Over the Years
According to data from the Variant Fund official website, the organization has invested in 54 crypto projects. The number of investments is relatively small, and the lead investment ratio is around 18%. The investments are fairly evenly distributed across areas such as infrastructure, DeFi, and NFT, including well-known projects in various verticals like Aptos, Foundation, Polygon, Mirror, Phantom, Uniswap, and Magic Eden.
2020, Variant Fund, which had just been established, immediately participated in the A round financing of Uniswap, and participated in the B round financing of Uniswap in 2022, showing the organization's keen insight and investment vision for high-quality projects. And in that year, it mainly invested in the DeFi field, as well as 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 projects such as Fei Protocol, Aleo, Yield Protocol, Phantom, Syndicate, Burrata, and Aztec Network, all of which have achieved impressive results and influence in their respective fields.
In 2022, NFT projects received a large amount of financing. Variant Fund led investments in NiftyApes, Koop, and Formfunction, and also participated in excellent projects such as Magic Eden and Oncyber. In that year, it also participated in several leading infrastructure projects in the industry, including zkSync, Aptos, Ceramic Network, and Polygon.
Investment Projects in 2023
In the first half of this year, Variant Fund invested in four projects, mainly in basic sectors. Except for the project Botto, which is related to the current hot topic of artificial intelligence, no major investment actions or direction changes were made.
Botto
Botto is an AI artist that draws inspiration from outstanding artworks in art history and uses artificial intelligence to generate new art pieces. At its inception, Botto airdropped governance tokens to NFT creators and collectors on various platforms. Botto community members can vote for the 350 pieces of art created by Botto each week to determine the final artwork and the artistic style of the AI. Through this method, community members can participate deeply in the art creation process in a relaxed manner.
Botto's artworks have also performed very well in the market. In early 2022, the trading volume on SuperRare exceeded one million US dollars.
Botto has been online in the field of encryption art for a while, but has never publicly received financing. Although Variant Fund may be influenced by the recent AI boom, they see the potential of Botto in AI and blockchain. However, its innovativeness and artistic characteristics are the reasons why Botto has high investment value in the field of encryption art.
3.6.3 Future Investment Direction
Variant Fund focuses on young entrepreneurs. From June to August this year, they will launch the first accelerator program "Variant Founder Fellowship" for Web3 founders in the early stage of entrepreneurship. 20 founders or teams will be selected and provided with support in the early stage. "Variant Founder Fellowship" is an important initiative launched by Variant Fund to support Web3 founders in the early stage of entrepreneurship and provide more opportunities and resources for them. The launch of this accelerator program fully demonstrates Variant Fund's attention and support for the encryption field, as well as its support and encouragement to young entrepreneurs.
Secondly, the Variant Fund team has supported dozens of leading projects in the industry, which have now formed their Variant Network. The establishment of Variant Network is another important initiative of Variant Fund. Through this professional community, Variant Fund connects founders and leaders in their investment portfolio, 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 provides more opportunities and resources for young entrepreneurs.
In the emerging and rapidly developing industry of encryption, experts in the field are often the builders at the forefront of innovation. Variant Fund advocates a network-based peer learning model, believing that this is the most effective way to interpret the "excellent examples" that appear in the construction process of Web3, and through Variant Network, it effectively promotes learning in product design, token strategies, regulatory issues, and other topics. We believe that Variant Fund will continue to promote the development and innovation of the encryption 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, 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 have conducted an in-depth study of some major players in the encryption VC industry, including a16z, Multicoin Capital, Paradigm, Mechanism Capital, Polychain, and Variant Fund. They have adjusted their investment strategies to adapt to the evolving market and technological trends, such as:
a16z has extensive investment experience and a wide portfolio, with a long-term focus on emerging blockchain projects and cryptocurrency innovation. They support seed investments for startups and will continue to prioritize long-term value and potentially expand their presence in the AI field;
Multicoin Capital, as a research-driven investment company, has rich experience in investing in major cryptocurrencies like Bitcoin and Ethereum. In the future, they may pay more attention to building the Web3 ecosystem, shifting their focus to infrastructure in a volatile market, and finding innovative projects with disruptive potential, such as those in the field of artificial intelligence and gaming;
Paradigm, although a relatively new company, has made its mark by focusing on long-term investments and innovative project discovery. They will continue to collaborate with developers and entrepreneurs to provide technical support, business development, and strategic guidance for investment projects, helping them achieve commercialization and sustainable development;
Mechanism Capital will continue to focus on the DeFi and gaming sectors and may explore projects that combine traditional finance with the cryptocurrency market in the future, bringing more opportunities and liquidity to the cryptocurrency market;
Polychain Capital, as a large and leading cryptocurrency investment company, will continue to pursue a steady investment strategy and diversify their portfolio to mitigate risks and maintain competitiveness in the market;
Variant Fund, focusing on early-stage cryptocurrency asset investments, emphasizes technical competence and market prospects. In the future, they will focus on young entrepreneurs and establish close relationships with domain experts and entrepreneurs;
In the future, we will continue to monitor and track the ongoing development and investment strategies of encryption funds, not limited to the six institutions mentioned in this article, in order to provide valuable insights for investors and participants in the cryptocurrency ecosystem.
In general, many encryption VC investments will be more focused on projects that help build the blockchain ecosystem and return to the area of infrastructure. Seed investments and investments in emerging projects such as AI will still be important, but stability and risk mitigation are particularly important for larger funds, as long-term development is their priority. Of course, long-term investments, innovative project discovery, and technical support are essential for a good project, which will help them achieve commercialization and sustainable development, and can also generate greater returns for VC.
However, the encrypted VC industry also faces some challenges, such as market risks, technological instability, and uncertain regulatory environment. Therefore, encrypted VC companies still need to maintain flexibility and sharp insights to respond to market changes and opportunities. Accordingly, as the regulatory environment improves and investors' acceptance of encrypted assets increases, the encrypted VC industry will further mature and develop.
It is essential for investors and entrepreneurs to understand the investment direction and trends of encrypted VC. We look forward to seeing these VCs continuously create value in the field of encryption and blockchain and make greater contributions to the development of the encrypted ecosystem.
