Recruitment Frenzy, Massive Capital, and Washington Blitzkrieg: a16z's Breakneck Advance in the Crypto Industry

Original Title: “Big Hires, Big Money and a D.C. Blitz: A Bold Plan to Dominate Crypto”
Authors: Eric Lipton, Daisuke Wakabayashi and Ephrat Livni
Translation: Nianqing, Richard Lee

Tomicah Tillemann (left) served as an aide to President Biden when he was a senator, while former Justice Department official Jai Ramaswamy is a team member pushing A16Z's crypto agenda in Washington. Source: The New York Times
Lunching with New York Senator Kirsten Gillibrand at a French bistro near the Capitol; meeting with several senior economic advisors to President Biden; and then a private dinner inviting a key financial regulatory agency.
The themes of these social gatherings are always the same: "How to win the future in the global cryptocurrency dominance race"—at least from the perspective of Silicon Valley venture capital firm Andreessen Horowitz, which recently sent a group of Washington insiders to present its views during a five-day lobbying blitz.
As tech companies have become notorious in Washington, and with the rapidly evolving crypto industry increasingly under scrutiny from lawmakers and regulators, Andreessen Horowitz is pursuing a very bold plan: to capture a significant share of the emerging digital currency world while also participating in shaping its operational rules.
To advance its agenda, the firm has hired a group of experienced government officials. This includes Tomicah Tillemann, a former aide to Biden when he was a senator, Katie Haun, a former Justice Department cryptocurrency prosecutor, and Brian D. Quintenz, who joined the effort just days after leaving the Commodity Futures Trading Commission, the crypto regulatory agency.
Andreessen Horowitz—also known as A16Z—has invested in at least 50 crypto startups, announcing several new deals each week, making it the largest crypto investor in the world.
This summer, A16Z established a new $2.2 billion investment fund to capitalize on the rapid growth of cryptocurrencies and the technology and financial infrastructure behind them.
A16Z is also a major investor in Coinbase, one of the largest cryptocurrency exchanges, as well as many other startups. The firm has recruited a large number of industry professionals, leading to a hiring frenzy that has become a topic of conversation on Twitter.
The vision pursued by A16Z founders Marc Andreessen and Ben Horowitz is to become the center of a thriving new ecosystem of digital technology that will disrupt multiple industries, including art, banking, finance, gaming, e-commerce, music, social media, and telecommunications.
Their regulatory proposals emphasize issues broadly supported in bipartisan U.S. policy: overcoming China's lead in digital currency and payments, re-establishing the U.S. as a leader in technological innovation, and expanding economic opportunities.
"To some extent, policymakers can gain more favorable information that will help solve issues and allow the next generation of the internet to thrive in ways that benefit us," Mr. Tillemann commented, "It's beneficial for both sides."
However, external experts who have studied A16Z's proposals indicate that these proposals are more about self-interest than social or national interest.
Lee Reiners, a former regulator at the New York Federal Reserve Bank and a systemically important financial institution, stated: "This is a very naked and transparent attempt, ultimately aimed at profiting."
The legislative proposals being promoted by A16Z would support its portfolio companies by exempting relevant entities from certain tax filings, consumer protection, and anti-money laundering requirements.
"This is a classic case of 'letting the fox design the henhouse,'" said financial lawyer and law school professor Rohan Grey, who has advised Democratic members of Congress on legislation to regulate the pending digital payment issues in the House. "They sound reasonable in their arguments, but fundamentally, it's hard for them to give up some interests for the public good."
A16Z spokesperson Rachael Horwitz stated that they welcome such debates. She said, "We have placed significant bets on founders and ideas that have the potential to shape the future, hoping they can overturn the past gatekeepers and intermediaries."
Since its founding in 2009, Andreessen Horowitz has championed a different approach to venture capital—one that venerates founders, believing that hardworking entrepreneurs are the most capable businesspeople and leaders, rather than merely providing funding, hiring, sales, and marketing assistance.
This viewpoint is a life creed rooted in personal experience. In 1994, 22-year-old Andreessen had just graduated from the University of Illinois at Urbana-Champaign with a degree in computer science, and he helped create the first popular web browser, Netscape; Horowitz joined Netscape when the company was at war with Microsoft, which dominated the personal computer market and deliberately restricted access to browsers. Netscape was sold to AOL for $4.2 billion in 1998, and a year later, the two founded an early cloud computing company, which was sold to HP for $1.6 billion in 2007.

Marc Andreessen
As venture capitalists, Andreessen and Horowitz raised large amounts of money and bid above competitors, holding early stakes in Facebook, Twitter, Pinterest, Airbnb, and Slack. Andreessen defined this approach as "our confrontation with the world."
Andreessen Horowitz looks to the Creative Artists Agency, a Hollywood talent management company, as a model for its ambition to represent every Hollywood star.
"The overall goal is monopolistic," said Michael Ovitz, one of the founders of CAA, during a discussion in April with Andreessen and Horowitz about A16Z's support for the audio app Clubhouse, where he explained his agency's influence on A16Z.
A16Z's first cryptocurrency investment was at the end of 2013, initially betting $20 million on Coinbase. Shortly thereafter, Andreessen wrote in a New York Times op-ed that Bitcoin, the world's first cryptocurrency, heralded a massive technological transformation, comparable to the personal computer in the 1970s and the internet in the 1990s.
Mr. Andreessen wrote: "Bitcoin offers a new perspective on the financial system of the internet age and provides a broad outlook on how it can operate."
Coinbase went public in April, with A16Z's stake valued at nearly $11 billion.
In 2018, A16Z launched its first fund dedicated to crypto investments, raising $350 million. This fund is a separate legal entity that complies with securities rules, limiting venture capital firms from allocating to high-risk investments like cryptocurrency businesses.
However, seeing the growing potential of cryptocurrencies, in 2019, A16Z transitioned from a venture capital firm to a registered investment advisor—this costly move subjected it to stricter regulations but allowed it to trade cryptocurrencies without constraints.
A16Z created a second $515 million crypto fund in 2020 and established a third $2.2 billion fund this year.
A16Z executives quickly realized that to achieve substantial returns from these investments, they needed to play a significant role in setting the rules for these companies.
Turning to Washington
As the sun sets, the sound of military helicopters occasionally drowns out conversations at the A16Z cocktail party on the Washington waterfront. Most of the newly hired policy team members attended this gathering, mingling on the terrace, enjoying crab cakes and drinks, concluding a five-day lobbying effort.
In the race to influence Washington, no other cryptocurrency player has a lineup that can rival A16Z's lobbying team.
Leading the Washington lobbying effort is Ms. Haun, a co-director of A16Z's $2 billion cryptocurrency fund. During her time at the Justice Department, Haun helped prosecute two federal undercover agents who stole hundreds of thousands of dollars in Bitcoin from the illegal dark web marketplace "Silk Road."

Katie Haun
Katie Haun joined A16Z in 2018, and this summer she recruited Tillemann, who is now the team's lobbying powerhouse in Washington.
Other new members include former Director of the SEC's Division of Corporation Finance William H. Hinman, former Deputy Treasury Secretary Brent McIntosh during the Trump administration, and Jai Ramaswamy, who led the Justice Department's anti-money laundering division during the Obama administration. These individuals, along with Mr. Quintenz (who was already a public advocate for crypto technology during his tenure at the CFTC), participated in briefings with financial regulators, congressional members, or White House officials.
However, they have not registered as "lobbyists." Tillemann argues that the identity of lobbyists does not align with what they are doing in Washington. "We believe we do not need a lobbying team right now, nor do we think these activities constitute a lobbying effort," he said. He described it as "an opportunity for constructive collaboration with policymakers to address shared concerns."
The company officially believes that due to a loophole in current lobbying regulations, its representatives do not need to register as lobbyists. (According to the U.S. Lobbying Disclosure Act, "lobbyists" must spend 20% or more of their time serving clients on lobbying activities.)
In speeches in Washington, A16Z team members frequently discuss their commitment to "democratizing" the internet. They argue that the decentralized nature of cryptocurrencies will make it easier for more people to obtain loans and investments through crypto platforms like Compound and Uniswap, supported by A16Z.
They state that cryptocurrencies will free artists, musicians, and influencers from the high fees charged by intermediary platforms, enabling them to sell their work using NFTs on A16Z-supported platforms like Open Sea. NFTs can prove ownership of specific digital artworks or music.

Ben Horowitz
However, lawyers Mr. Reiners, Mr. Grey, and Dan Awrey, a law professor at Cornell University who consults for global financial institutions, express concern about many key points in A16Z's regulatory proposals. They say the proposal is essentially seeking self-interest by circumventing existing regulations, putting consumers at a disadvantage.
They point out that a provision in the legislative proposal would exempt certain crypto entities from the regulations of the Investment Company Act of 1940 (which governs business companies under the oversight of the SEC). Some crypto startups funded by A16Z are being established in a new organizational form known as "decentralized autonomous organizations" or DAOs, which, according to A16Z's plan, would not be subject to this act.
A16Z argues that this exemption is justified because DAOs are allegedly run by crypto user communities rather than profit-seeking big capitalists. However, in reality, the financial backers behind these platforms can still reap substantial profits, as the founders of crypto startups often hold significant shares of specific crypto tokens, which in some cases grant voting rights to help manage these platforms.
A16Z's proposal would also limit the Consumer Financial Protection Bureau's ability to regulate DAOs. Instead, it suggests that the federal government consider relying on industry "self-regulatory organizations" to define and implement consumer protection measures. Additionally, the proposal would grant DAOs favorable tax treatment, reducing their disclosure obligations to the IRS and exempting membership fees charged by DAO organizations from taxation.
Experts say that if A16Z's proposal is implemented, it would create loopholes for the firm, other financial industry participants, and even hedge funds, allowing them to exploit these loopholes for self-reorganization, potentially undermining the existing financial regulatory framework.
"In the name of financial democratization, what I see is a shell game where they move the balls around, hoping people don't realize the game is rigged," Mr. Awrey said. "What they are calling for is to exempt (certain crypto entities) from some of the most important investor protection laws in the U.S."
In a lengthy 10-page response provided to The New York Times, an A16Z lawyer wrote: "We welcome feedback from the public on how to tighten these exemptions to ensure their effects do not exceed what is intended."
The White House and congressional members declined to discuss their meetings with A16Z representatives in detail. However, industry companies indicate that A16Z's efforts in Washington are part of what makes it an attractive investment partner.
"The law is the law; the question is how to apply it," said Ian Lee, one of the founders of Syndicate, a crypto startup that chose A16Z as its lead investor in a funding round in June. "This is a significant reason for working with A16Z and its legal and regulatory team."