Can Andreessen Horowitz prevent the next crypto winter?

Hey everyone, and welcome back to Chain Reaction.

Last week, we talked about the rough road ahead for Coinbase. This week, we’re talking a bit about Andreessen Horowitz’s multibillion-dollar bet on web3’s continued viability. Read on to check out the latest episode of the Chain Reaction podcast as well.

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May hasn’t been the kindest month to crypto. Consecutive weeks of drops have left whispers of the “buy the dip” going cold as industry players buckle down for winter.

A brief moment of warmth came this week, when Andreessen Horowitz (a16z) announced that it has raised $4.5 billion for its fourth crypto fund, more than doubling the size of its last fund. It’s the largest institutional crypto firm to date and comes at an interesting time.

While VC firms the world over have been pressing their portfolio companies to cut burn rates and buckle down for bad times, many crypto founders were already prepared for this moment, having raised stupid amounts of money from VCs solely for the purpose of not having to raise cash later. While tech broadly has not suffered a prolonged recession since the early 2000s, crypto startups have endured much tighter windows of boom and bust. Despite plenty of coffers being full, it’s fair to assume that a crypto winter will put plenty of venture-backed startups on ice.

A16z didn’t let too many details fly on their exact plans for this fund, but they did interestingly detail that they’re planning to devote at least $1.5 billion of the fund to seed deals. That’s an awful lot of seed deals — likely hundreds of them — coming from a single fund.

The question is whether the rest of the venture ecosystem around crypto sticks around. Plenty of hedge fund entrants to the markets have gotten burned and other traditional venture firms seemed to sheepishly poke their head into this cycle and may already be close to the door.

For a market that’s been frothing with dumb money for a couple years, any sort of pullback is going to leave startups in a lurch, and a16z’s focus on young companies with their new fund may be tough for companies eyeing growth dollars.

neumann, new man?

Now that Lucas has given you the breakdown on a16z, it’s Anita here to get you up to speed on the latest episode of the Chain Reaction podcast, where we unpack the latest web3 news, block-by-block for the crypto-curious.

We talked plenty about Andreessen Horowitz, which really said “what downturn?” this week, announcing the largest dedicated crypto venture fund ever. Granted, much of that capital was probably raised before the crypto markets started tanking, but we unpacked the storied firm’s strategy and discussed a somewhat questionable investment it just made in a well-known grifter’s new blockchain startup. (Hint: He kinda looks like Jared Leto.)

For our guest, we had investor Grace Isford join us from Lux Capital to talk about the infrastructure that works behind the scenes to make web3 tech run smoothly.

Subscribe to Chain Reaction on Apple, Spotify or your alternative podcast platform of choice to keep up with us every week.

follow the money

Where startup money is moving in the crypto world:

  1. Singapore-based metaverse app BUD closed $36.8 million in a Series B round led by Sequoia Capital India.
  2. NFT-based social platform Primitives raised a $4 million seed round with Redpoint as lead investor.
  3. NFT fraud detection startup Doppel scored $5 million in seed funding led by FTX Ventures.
  4. DAO community management platform Common raised $20 million from Spark Capital, Polychain and others.
  5. Carbon credit tokenization protocol Flowcarbon raised $70 million through a Series A round led by a16z as well as a private token sale.
  6. Blockchain infrastructure provider StarkWare closed a $100 million Series D led by Greenoaks Capital and Coatue.
  7. DeFi personal finance app Pebble raised a $6.2 million seed round led by Y Combinator.
  8. Digital asset manager Babel Finance scored $80 million in a Series B round from Jeneration Capital, 10T Holdings, Dragonfly Capital and others.
  9. NFT social marketplace Bubblehouse nabbed $9 million in seed capital from Cassius Family, SV Angel, angel investors Steve Aoki and David Guetta and others.
  10. Crypto tax prep software ZenLedger nabbed $15 million in a Series B led by Parafi.

the week in web3

Everyone’s been talking about a cool down in the crypto markets, but as reporters covering the space, we’ve felt busy as ever. It seems like venture investors are keeping busy, too, trying to put massive amounts of capital to work that they raised largely before the markets went south.

As for the firms currently raising new funds, they seem to have conviction that there are still lucrative opportunities out there in the crypto startup world, and that this downturn will simply separate the winners from the losers. (They’re hoping their portfolios already contain the winners.)

  • A16z’s whopper of a web3 fund speaks to their commitment to the space, even if other firms pull back, investor Arianna Simpson told Lucas in an interview.
  • Soona Amhaz’s Volt Capital announced a $50 million crypto fund, just over a year after it debuted its $10 million vehicle. Marc Andreessen and Chris Dixon are amongst the familiar faces backing Amhaz. Lucas has the details here.
  • Anita wrote about some Twitter drama that unfolded this week as the founder of fintech startup, Eco, took to the platform to accuse the founders of Y Combinator-backed Pebble of copy-pasting its business model. The battle between the startups, which both use stablecoins to provide yield, caused some to question the investment approach taken by accelerators like YC.

TC+ analysis

Curated analysis that you can read on our subscription service TC+ (written by TC’s Jacquelyn Melinek): 

Terra’s community passes proposal to revive LUNA cryptocurrency following stablecoin-led implosion
Nine days ago, Terraform Labs (TFL) founder Do Kwon shared a plan to revive the Terra Ecosystem after its stablecoin and cryptocurrency nosedived earlier this month and brought down the crypto markets with it. Now, the plan has passed approval from Terra’s community for a new Terra 2.0, which not everyone is certain will succeed. Will history repeat itself?

StarkWare quadruples valuation to $8B in 6 months, closing round in choppy market
Crypto markets may be choppy right now, but big players are still raising capital as demand for scalable blockchain infrastructure remains strong. The most recent example of that fact is StarkWare Industries, which just raised $100 million at a valuation of $8 billion, the company shared on Wednesday. The new capital came just six months after the unicorn closed a $50 million Series C, quadrupling its valuation from $2 billion to $8 billion.

Mastercard exec is bullish on crypto, sees mass adoption ‘sooner rather than later’
Both large and small companies are retaining their crypto optimism despite the recent market correction in the developing technology space. Mass adoption of blockchain technology and digital assets is going to happen sooner rather than later, according to Mastercard’s VP of new product development and innovation, Harold Bossé. But there are a number of challenges right now stopping corporations from entering the market, Bossé said, like lack of senior management understanding and regulatory concerns, among other aspects.

Luna Foundation Guard adviser says Do Kwon hasn’t reached out since UST crash
There seems to be no shortage of news around Terraform Labs’ cryptocurrency LUNA and algorithmic stablecoin TerraUSD (UST) imploding. Last Friday, one of the four advisers to Luna Foundation Guard (which was Terra’s Singapore-based nonprofit dedicated to protecting UST), told TechCrunch there have been no meetings with Terra founder Do Kwon since UST crashed. How does the adviser keep up with the Terra situation? Through Twitter like everyone else, he said.

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Lucas and Anita