a16z’s new $2.2B fund won’t just bet on the crypto future, it will defend it

The big news in tech this morning is a new a16z cryptocurrency-focused fund totaling some $2.2 billion. The new investment vehicle is worth around four times what the company’s preceding crypto fund — its second — was worth.

Andreessen’s wager on cryptocurrency is only accelerating over time as the investing house raises larger funds focused on the market with less time between them.

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It’s not hard to see why a16z is so enthused about the crypto market; its investments into trading house Coinbase paid off handsomely this year when the unicorn direct listed at a huge valuation premium to its previous worth. Why not put more capital into a startup cohort that was recently immensely lucrative?

But the venture capital group is up to a bit more than just writing new checks. We can tell that much from the firm’s short post announcing its new fund. Mix in a recent interview with a16z co-founder Marc Andreessen concerning the American regulatory environment, and we can understand that the firm is not simply planning a flurry of new deals.

Defending the future of crypto

The headline figure of $2.2 billion in capital available for crypto projects is driving headlines this morning, but the dollar figure should not be a surprise. There’s essentially infinite money in the market for name-brand venture capital firms today, it appears, and with a16z’s recent Coinbase win, I doubt it was monstrously difficult for the firm to compile a new, larger crypto-focused vehicle.

What we should care more about is what the investing team intends to do with its new capital apart from investing it. It will obviously put its fiat lucre into startups, and we’ll cover those deals here and there. But read this from Chris Dixon, Katie Haun and Ali Yahya of the crypto fund (bolding is ours):

We’ll continue to deepen our focus on the kind of behaviors our entrepreneurs expect from a crypto investor including staking, delegating, running nodes, actively participating in governance and designing mechanisms. We’re expanding our data science and research teams to support this effort.

You have to dabble in crypto to have any hope of investing intelligently in its projects and companies. Hell, I once bought a few $50 chunks of bitcoin years ago to get a feel for the consumer experience, later converting those funds into other cryptocurrencies that are now defunct as far as I can tell. As is the exchange I was using, so goodbye to that money. The exercise was still useful to my coverage of bitcoin and its compatriots.

But a16z is going much further. It’s going to participate in the tech and governance of crypto projects; it wants to be an active player in the crypto economy that it intends to help fund.

And then there’s this (bolding, again, is ours):

As with any new computing movement, crypto has endured a variety of challenges and misconceptions. That’s why we are also bringing together heavy-hitters across several functions to help translate crypto to the mainstream. Our team now includes experts in marketing, public relations, policy, regulatory affairs, recruiting, as well as general startup management. We are promoting Anthony Albanese, who joined us last year from the New York Stock Exchange, to Chief Operating Officer to lead operations.

This is going to be interesting because a16z intends to run defense for crypto in the American, and perhaps global, market. Crypto-focused startups are likely unable to tackle the regulation of their market on their own because they’re more focused on product work in a particular region of the larger crypto economy. The wealthy and connected investment firm that backs them will take on the task for its chosen champions.

If you’re surprised to see a16z tackle regulation, observe the following quotes from a recent interview with Marc Andreessen and Noah Smith, a Bloomberg opinion writer who has a blog. Here’s Andreessen on the private market response to COVID-19 (bolding: TechCrunch):

So the good news is that, notwithstanding the apparent chronic collapse of state capacity virtually everywhere in our time, the private sector can and does deliver even under considerable duress, and even when much of our political system is devoted to stifling it with regulatory handcuffs and damaging it with misguided policies.

And here’s his answer to a question regarding the China-U.S. technology rivalry:

In the meantime, the West’s technology champion, the United States, has decided to self-flagellate — both political parties and their elected representatives are busily savaging the U.S technology industry every way they possibly can. Our public sector hates our private sector and wants to destroy it, while China’s public sector works hand-in-glove with its private sector, because of course it does; it owns its private sector. At some point, we may wish to consider whether we should stop machine-gunning ourselves in the foot at the start of this quite important marathon.

With those notes from one of its founders, it’s a bit less surprising to see a16z decide to take on some government lift on behalf of crypto; it thinks that the government is actively trying to whack the private sector, and thus the technology sector, and it thinks that it can impact government policy in the crypto world.

OK, so, the new a16z crypto fund includes financial capital and a willingness to take on Washington. But it’s also a human capital machine, now flush with more talent and backing to help defend the future that a16z sees for the crypto economy.

My question is when investors and founders are going to stop saying things like this:

[W]e are still at the very early stages of what is possible [with crypto]. The size of this fund speaks to the size of the opportunity before us: Crypto is not only the future of finance but, as with the internet in the early days, is poised to transform all aspects of our lives.

Then I’ll start actually using the stuff.