Be greedy when others are fearful, and fearful when others are greedy. Consensus is expensive. There are cliches aplenty when it comes to making money, and many investing koans deal with doing the opposite of what the masses are up to at any given point.
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The logic works to a degree in startup land. The Web 2.0 chestnut that great companies are founded in hard times has been adapted by the web3 crew, for example. When crypto prices are going up, money piles into the sector. When crypto prices crash, folks in the web3 world love to call the regular and painful downturns “building periods.”
What matters more than sloganeering? Capital flows. And despite all the well-worn wisdom that investing when markets are cracking and the public is running scared, we are seeing venture capital totals slow around the world — in crypto, in particular.
Heading into today, it seemed likely that the falling pace of venture investment that we’ve observed in recent months would persist as crypto hibernated between price events. And then Andreessen Horowitz announced this morning that it has raised a $4.5 billion crypto-focused fund. As our own Lucas Matney put it, that’s a “whopper” of a fund size.
Putting said capital where own mouth resides
A beef that one could have with venture capital is that it’s not always very adventurous. For example, during the SaaS era of the last decade or so, venture investing was increasingly metricized and, to a degree, figured out. Sure, some investors were still putting money into moonshots — literally, at times — but it seemed that the easy, well-trod path to recurring software revenue nirvana was absorbing so much market oxygen that most VCs looked more like mini crossover funds than venture outfits.
And we’re seeing even those bets pull back as the stock market takes body blows and market sentiment about growth versus profitability swings away from the former and toward the latter.
What a16z is doing is something akin to quadrupling down on the web3 market with its largest fund to date, precisely as its competitors tighten up their purse strings. This is what it actually means to be greedy when others are fearful, and a16z knows it. From Matney’s look at the new fund:
Crypto Fund IV continues to be helmed by longtime GP Chris Dixon, who has seemed to up his public persona in recent months, particularly on Twitter, where he breathlessly defends the web3 space from its detractors, getting into occasional spats with figures like Block’s Jack Dorsey and Box’s Aaron Levie. The continued skepticism among plenty of investors and entrepreneurs has grown louder in recent weeks following the particularly ugly collapse of the Terra ecosystem and its stablecoin UST, which imploded seemingly overnight, evaporating tens of billions in value while renewing calls among federal lawmakers to fast-track legislation aimed at reining in the industry.
When asked whether the market’s cooling will scare traditional firms away from continuing their crypto bets, a16z’s Arianna Simpson told TechCrunch that “it’s likely other firms will pull back,” but that “the size of our new fund speaks to the level of excitement and belief we have in this category.”
Hell yeah.
I have no idea if raising a roughly double-sized fund — when compared to a16z’s third crypto capital pool — is the right move at the moment. Coinbase, perhaps the most important success from the investing group’s crypto portfolio, has lost most of its value as a public company. So it is a little hard to understand where the scale of returns that a16z will need to generate for its latest fund to make mathematical sense will come from.
But that’s the point of venture capital and its variants (recall that a16z is now an RIA instead of a traditional VC). They should be firing capital darts at ambitious targets when public-market investors are pissing themselves. That’s the game!
In short, it’s nice to see an investing group put their dollars where their vision is even when the market is trash, instead of merely shouting on Twitter that they, or their firm, are still doing deals.
Talk is cheap, while new funds are expensive in terms of yet-unmet expectations and work.
Let’s see if a16z is right about both the timing of its new fund and the focus of the capital. But at least the firm is not shying away from a market it has long supported, even as it goes through a downturn. That’s worth a brownie point or two from my perspective.