Overview of Crypto VCs: Who is Empowering Brands and Who is Providing Value Addition?

Written by: Dylan Olivia Hunzeker

Compiled by: TechFlow

Cryptocurrency venture capital often appears vague to outsiders, and many believe it to be one of the most competitive and brutal branches of the crypto space. The emergence of new funds, lightning-fast funding rounds, and the recent mention of "vulture capital" funds (which do not allocate resources but hope to strike deals) by disgruntled founders on Twitter have led some founders today to choose to avoid funding from pure trading funds, opting instead to collaborate with a large network composed of angel funds or DAOs.

Whenever I think of who has achieved traditional success in crypto primitives, I always recall a particularly thrilling scene from the movie Margin Call (often translated as "商海通牒," an underrated gem). In this scene, Jeremy Irons plays a formidable CEO who understands only a few key things and nothing else. As the market is about to collapse, he tells his colleagues, "Why did I make a lot of money?"

"What if I told you that there are three ways to make a living in this business?" he rhetorically asks.

"First, you have to be smarter and cheat."

This heuristic approach (with slight modifications) can apply to most crypto funds you may have heard of. However, a new framework has emerged that helps us understand these funds, which can be categorized into three types. As Richard Malone, the COO of Advanced Blockchain AG, eloquently stated, current funds fall into three basic categories: Brand Funds, Specific Value Add Funds, and All-Purpose Service/Value Add Funds (which typically start and operate as incubators and accelerators). I will add some nuances and subcategories to this classification to further clarify these funds.

A Quick Overview of Cryptocurrency Venture Capital

You can think of the earliest launched funds as Brand Funds. They come with a roster of big-name investors; they have an LP base that will exist forever; they are well-known funds. Securing investment from these funds is akin to graduating from an Ivy League school, owning a unique Hermès Birkin bag, or driving a Bugatti, etc.

These Brand Funds become self-fulfilling prophecies—when other funds hear they are investing, they scramble to join the deal, triggering an unprecedented FOMO that brings in more resources and creates a network effect. (This is not a new phenomenon; it is also seen in traditional venture capital.)

As a stereotype, the importance of Brand lies in the fact that they are often immersed in reality, but Brand is not everything. If people criticize Brand Funds, it is for sometimes appearing to "live off their past." Moreover, over time, economies of scale make it less likely for Brand Funds to engage in early-stage deals. The larger the assets under management, the smaller the checks they write. Recently, Paradigm stated that it would not write checks below $2 million, which automatically eliminates the vast majority of pre-seed deals in the market.

Sometimes, Brand can also be associated with Twitter bios and the cult of personality around general partners, which often manifests as a superficial metric in actual business activities. I once interviewed an operator with an investment background and asked her why she did this. She replied that she did not want to get involved in the "dirty battles of Twitter thought leadership." She articulated it beautifully!

Let’s talk about who comes first and why the order matters. I enjoy thinking about cryptocurrencies and watching mafia movies, so I have recently been pondering who the five major mafia families in the cryptocurrency space are (or, for us, the four major families). If cryptocurrency were a mafia organization, as we all know (you know what I mean), which fund would be the most VIP among all VIP funds?

To me, the answer is obvious.

Blockchain Capital is a "foundational fund," with roots tracing back to 2013, and Brock Pierce is one of its three founders. This big brand is often referred to as "BCap" in conversation, and it has one of the largest AUMs in the field, boasting some of the most successful stories.

Then there is Pantera Capital. It is hard to compete with this fund led by renowned macro investor and early crypto enthusiast Dan Morehead, which is one of the most successful funds to date (in terms of returns) and one of the first well-known funds to invest in cryptocurrencies, launching its Bitcoin fund in 2013 as its first foray into the space. Even more impressively, they are now innovating with a new rolling fund structure and have set a goal of raising billions of dollars.

Fenbushi ranks third, founded in 2015 in Shanghai, and it also has billions in AUM, along with superstar young partners launching personal funds. Much of their AUM comes from early investments in the space.

Founded by Barry Silbert in 2015, Digital Currency Group is now valued at $10 billion and is one of the oldest, most legendary, and most famous cryptocurrency companies in the world. They do not accept external LPs, so technically they are not a fund, but for the reasons mentioned above, I must include them on the list.

However, Brand Funds are not just known for being in the T1 tier. Some Brand Funds have become very powerful due to their ability to bring specific value. (If they were not this powerful, they would be classified as All-Purpose Service/Value Add Funds).

Founded in 2018, Paradigm is not just an early fund or a brand; it is one of the best funds of the period. Legendary figure Fred Ehrsam transformed from co-founder of Coinbase into an absolutely top-tier investor. Paradigm has now raised the largest cryptocurrency fund in history, and they are notoriously hard to compete with. Among founders (and investors), they have earned a reputation for their unparalleled technical expertise. (Justine Humenansky [justinehy.eth] asked all the founders at the conference what their dream cryptocurrency VC was, and they all said Paradigm).

A16Z Crypto also started in 2018, making it an early fund in the field. While many funds aim to operate discreetly, A16Z has done the opposite. They have developed an unparalleled media and public relations machine. To this day, under the leadership of former U.S. Assistant Attorney Katie Haun, their expertise and influence in regulation/legal/lobbying are considered the best in the industry by other investors.

Parafi Capital, founded by Benjamin Forman in 2018, is another example. They explicitly focus on decentralized finance (in fact, they are one of the earliest funds to focus on DeFi), but they also have unparalleled involvement in the protocols they support through governance. My friend Justine Humenansky pointed out that, to some extent, they are the new active investors.

Multicoin Capital was established in 2017, and their first fund appreciated about 200 times. You could say they are both a brand and smarter: they are known for their contrarian positions (like Solana) and often succeed, and we cannot overlook them.

Speaking of those companies that are not themselves brands (or have not been around long enough to automatically be classified as Brand Funds), there are a few that are relatively smart, with their added value not being super specific, and they have already become self-contained brands.

Miko Matsumura's Gumi Cryptos started in 2017 and has one of the best rosters currently. They just closed their second fund in October, and they have invested in top-tier category funds like OpenSea, Yield Guild Gaming, Celsius Network, and Agoric at the seed stage. I know some of their founders personally, and they maintain their openness to allow Miko, a profound thinker leading multiple fund investments, to invest. As a private friend of Miko, I have yet to find anyone who matches his breadth of knowledge, critical thinking, and ability to understand, foresee, and connect trends.

Arrington Capital, also founded in 2017, is another fund that has successfully grown to manage billions in assets, boasting some of the smartest and most flexible investors on its roster. Their founder, Michael Arrington, is known as a savvy Silicon Valley investor and has a brand named after himself. As someone who has co-invested with the firm, I can attest to the depth of research they conduct, their team's intelligence, and their remarkable ability to aggregate deal flow, conduct due diligence, and close investments quickly.

Here we must also mention Polychain Capital, Dragonfly Capital, Reciprocal Ventures, Digital Finance Group, Bixin, Nima Capital, Kenetic Capital, Republic Crypto, Blockchange, Galaxy Digital (which is technically a cryptocurrency commercial bank, not just a cryptocurrency VC), Coinfund, and Distributed Global.

These funds are relatively smart and can be considered brand funds (but the classification may be due to their relative intelligence rather than just their founding dates). Their founding years are 2013 (Nima Capital), 2014 (Bixin), 2015 (Digital Finance Group, Coinfund), 2016 (Polychain, Reciprocal Ventures, Kenetic Capital), 2017 (gCC, XRP Arrington, Distributed Global, Republic Crypto, Blockchange), and 2018 (Dragonfly, Galaxy Digital).

Then we arrive at those companies that smartly position themselves to be useful to founders seeking investment. In fact, our COO Richard Malone even mentioned in a conference call a few weeks ago that just as venture capitalists ask founders, "What is your tech stack?" founders will eventually ask venture capitalists, "What is your venture capital stack?" Investors qualified to be all-purpose value adders will be referred to as "full-stack" venture capital.

Funds that understand this reality can be considered relatively smart. Regarding specific value adds we have not discussed under the "specific value adds silo," we see a value add that has become very popular: providing liquidity for decentralized finance. It is in higher demand in projects that have yet to establish themselves, and (sometimes investment requires) investors to provide liquidity support for projects.

GSR, Jump, Alameda, Efficient Frontier, Spartan, Wintermute, CMT, and CMS are some of the largest market makers, and companies launching (DeFi) protocols must collaborate with them.

Many recently emerged specific value add funds have formed in the form of DAOs. 0xDAO specializes in providing liquidity for its DAO members and friends. Santiago Ramos recently started a venture DAO with his friends. Some DAOs exist to help certain types of founders (Komorebi Collective is for women and non-binary individuals in the cryptocurrency space). Operator DAOs are beginning to emerge. Even DAOs focused on Shitcoins have gained popularity.

ByBit DAO, as an example of a decentralized exchange, has formed a DAO, seeded by Pantera, and can be seen as a significant cycle from centralized to decentralized—this will become one of the most interesting social experiments involving how VCs in the field can amass significant AUM in a decentralized manner.

Sometimes, funds are not the vehicles for investment, but the companies themselves are brands. For example, Kenetic Capital (led by the great Jehan Chu) and NIMA Capital (previously mentioned) are family offices, but they are regarded as the most active and successful cryptocurrency investors. HOF Capital is another family office that has carved out an elite niche market in recent years and is known as a wildly aggressive investor, led by Corby Pryor.

Another recent specific value add initiative is design. IDEO Co-Lab specializes in helping founders design their products, marketing materials, and Twitter presence.

Electric Capital is known for publishing amazing research, and developers and investors rely on their research when surveying the market.

Variant Fund focuses on investments in Web3 and the creator economy, connecting its founders with others in the creator verticals.

Tribe Capital is renowned for its machine learning technology and is top-notch in finding deals.

Other types of specific value add funds we can think of are Silo Specific funds. Recently, NFT funds have emerged. SFermion comes to mind as they specialize in NFTs and will soon evolve into a DAO. Wave Financial is said to have set up an NFT fund as well. Collab + Currency has also shifted to focus primarily on NFTs. In the Metaverse funds, some even invest in assets within games and have gained popularity (Galaxy Interactive may be the most notable among these funds, as well as Gemini's metaverse fund).

Metaversal, a joint venture with CoinFund, and Republic Realm are newly emerging funds. Katie Haun's new fund will focus on the metaverse.

Some themes are even geographically linked. Folios Ventures targets East Asia and Southeast Asia as its primary mission, as do Sky9 Capital, GBIC, David Gan's OP Crypto, and several others.

Ecosystem funds are another example of specific value add funds. Their main purpose is to support an L1 ecosystem. Hypersphere will connect you to DOT, as they primarily focus on investments in the Polkadot ecosystem. Parity Ventures is also a DOT ecosystem fund. Cosmos has a new fund called Tendermint. Terra has a well-known ecosystem fund called Terra Heart. Avalanche has several ecosystem funds. Algorand has Borderless Capital. Zilliqa has ZilliqaCapital. Solana alone has at least three related funds: Solar Ecosystem Fund, Solana Foundation, and Evernew Capital.

NEAR has MetaWeb.VC. Even companies in this field have their own related funds; for example, it is rumored that Chainlink is launching its own ecosystem fund. Most major exchanges have their own venture capital departments (including Coinbase Ventures, Huobi Ventures, OKEX, etc.).

[Sometimes, funds focus on certain ecosystems, but their existence is not just as an ecosystem fund. For example, our friends at Valhalla Capital are very focused on the Algorand ecosystem.]

Grants programs themselves are a type of ecosystem fund without returns. It is worth mentioning that they bring a lot of value to the ecosystem itself; they do not operate as investments, so their speed is lightning-fast. Certain charitable projects are more active than others (Polygon has a well-known charitable project, despite controversies. NEAR has an active charitable project, with grants below $10,000 being automatically approved, Flare Network has set up a large charitable fund, and Uniswap, along with other funds that are adding charitable projects…).

There are also some more general, vague "value add funds," which may have smaller, more numerous teams (and a good roster, as they have been around for a while), along with a managing partner whose best outcome in fulfilling their duties is a vague scope, and the worst outcome is excessive interference. These teams find it harder to gain an "edge" in cryptocurrency trading. These funds are typically composed of young, agile members who work hard and have good networks, but they are not large in scale. In fact, many of these managers invest for business development.

Finally, there are All Purpose Value Add Funds, which typically start in the form of incubators or accelerators. Consensys's Ethereal Ventures is the most obvious example. Thesis is another example, as is Delphi Digital.

Yunt Capital is a DAO that has successfully positioned itself as an expert in all "hotspots" of cryptocurrency. "When we invest in projects, our focus is not just on providing capital. We like to engage with projects that wish to collaborate with us and hope to provide our guidance and advice on tokenomics, governance, and content, but we also have comprehensive niche expertise," one of their founding members recently stated. Yunt Capital has eighteen members who are sufficiently decentralized and well-connected, earning a strong reputation as value add investors without a traditional fund structure.

0xVentures DAO is similar, with eighty members. These members are also powerful users of investments (their founder told me via Telegram earlier this week that "quants, NFTs maxis, traders, gaming wizards, venture capitalists, and developers" are just a sample), helping Yunt Capital build the best products. The work they do for founders includes: creating content, consulting for major platforms, incubating, providing machine learning, node operations, code reviews, and more. Currently, neither of these DAOs has tokens, but another team called New Order DAO also has value add and exists in a DAO structure.

It was founded by former Outliers Ventures partner Eden Dhaliwal, and their decentralized accelerator model is currently operating perfectly, with their first product Opytfi receiving widespread acclaim, and you can now purchase their tokens on the open market.