Crypto venture capitalists take it on the chin

It’s not just crypto retail investors having a bad year. according to The Wall Street Journal, the industry’s 800-pound gorilla, Andreessen Horowitz (a16z), is also being glued in as the venture capital fund’s flagship crypto fund lost 40% of its value in the first half of the year. The report suggests some investors are nervous that the firm — which made its name with early bets on the likes of Facebook — is too deep into crypto.

Needless to say, the a16z’s current situation doesn’t garner much sympathy. The firm isn’t exactly known for its humility, and its self-promotion and penchant for bombast have rubbed off on others in Silicon Valley. Others are simply offended that the firm̵[ads1]7;s gigantic size allows it to throw its weight around when it comes to accessing hot deals.

While a bit of mischief is always fun, the a16z is unlikely to be in any real trouble. As WSJ The report acknowledges that the firm’s crypto fund previously delivered returns that were the best in venture capital history, while a16z has returned billions in profits to its investors. And while 2022 has been a terrible year for a16z’s balance sheet, few will remember this when the next crypto boom cycle returns and – more likely than not – the firm starts delivering 5x to 10x returns again.

But that doesn’t mean all is well in the world of crypto venture capital. I recently spoke with Sarah Tavel, a general partner at Benchmark who is responsible for the firm’s crypto play and is widely respected in Silicon Valley. She said crypto investing has been defined by a handful of giants — notably a16z, Paradigm and Haun Ventures — chasing too few quality startups. This has led to crowded investment rounds and unrealistic valuations.

Tavel also told me that the crypto industry relies on speculation and empty-calorie investing – focusing on fads like yield farming and initial coin offerings. She says this fixation on speculation has come at the expense of consumers as VC firms focus on token gimmicks rather than building products people want to use. It has also led to mistrust of the crypto community as a whole.

It will be interesting to see if the current downturn produces a cultural change in the crypto VC world, or if the rise of newer firms led by younger people – Variant comes to mind – will cause VCs to focus more on consumer products. It is too early to say. But for now, few would complain if VCs spent less time on thought leadership and more on building something useful.

Jeff John Roberts

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