Venture capitalists have bet big on crypto start-ups in 2021, investing more than $ 27 billion globally at the end of November, more than the previous 10 years combined, according to PitchBook.
Much investment has been made by the venture capital arms of crypto companies, companies whose continued growth will depend on the expansion of the ecosystem.
Coinbase Ventures, the investment arm of the Coinbase cryptocurrency exchange, supports companies that build infrastructure such as Solana, a blockchain network; companies offering crypto financial services, like BlockFi, and decentralized financing projects, called DeFi projects, in which automated transactions are managed by code; and entities working on the digital metaverse economy, where users buy and sell digital goods for their virtual life, like non-fungible tokens, or NFTs.
In the third quarter of 2021, Coinbase Ventures closed more deals than any other venture capital firm, according to CB Insights, which tracks venture capital and start-ups.
Supporting the crypto ecosystem is the main focus of the investment arm, Shan Aggarwal, director of Coinbase Ventures, told DealBook. “Return is not the primary measure by which we measure the success of Coinbase Ventures,” he said.
Coinbase and other crypto companies envision that blockchain technology, the open source database system underlying cryptocurrencies, will lead to the evolution of the internet and eventually help displace tech giants and keepers today.
“We see a world where the best start-ups of tomorrow are all built on a web3 blockchain infrastructure,” Mr. Aggarwal said, using the industry term for a decentralized internet. “This is the future that we are building. “
Investor interest in crypto at the institutional and retail level has also benefited from Coinbase’s successful public debut in April, which valued the company at more than 10 times its last private valuation, and the creation of large funds dedicated to it. ‘space. Silicon Valley venture capitalist Andreessen Horowitz, whose 2013 $ 20 million investment in Coinbase was valued at around $ 11 billion, announced a $ 2.2 billion crypto fund in June. . It was the largest in the world until last month, when venture capital firm Paradigm, which is run by a Coinbase co-founder, announced a $ 2.5 billion crypto fund.
Venture capital funds and crypto companies are interconnected and tend to place bets in multiple categories, making them invested in each other’s success.
For example, the biggest early stage crypto deal this year was a billion dollar fundraiser raised by FTX, a crypto exchange. Paradigm, which is headed by Fred Ehrsam, the co-founder of Coinbase, was one of the investors. FTX founder Sam Bankman-Fried is also the founder of Alameda Research Ventures, which in August led a fundraiser for the stable Trust Token with Block Tower Capital and Andreessen Horowitz, an early investor in Coinbase.
“It’s a mixed bag,” said Charles Hoskinson, founder of the Cardano blockchain network, which has not raised any venture capital funds. Venture capital firms offer start-ups many crucial services, but some wonder if their heavy involvement in crypto undermines the language of democratization so central to industry ethics. “They’re always going to have their pound of flesh before anyone else,” Hoskinson said.