a16z: Why We Launched a $4.5 Billion Web3 Fund in a Bear Market

From Techcrunch, original author: Lucas Matney

Compiled by: Moni, Odaily Planet Daily

In the past few weeks, the cryptocurrency market has experienced significant turbulence, with the collapse of UST/LUNA, a bleak outlook for DeFi, and a sharp drop in BTC, making it difficult to see the prospects of this emerging industry. However, for venture capitalists optimistic about the future of Web3, their pace has not slowed.

On May 25, Andreessen Horowitz (a16z) announced that it has raised $4.5 billion for its fourth crypto fund, "Crypto Fund IV." The firm plans to allocate $1.5 billion for seed investments in Web3 and $3 billion for more traditional venture investments. This fund is the largest individual crypto fund raised in venture capital to date, bringing a16z's total crypto fund management to over $7.6 billion.

So why is a16z forming a "mega fund" for Web3 during a bear market? There may be two main reasons------

1. a16z's Market Position is Challenged

About a year ago, a16z announced the launch of its crypto fund Crypto Fund III, which had a size of approximately $2.2 billion. In terms of scale, the newly launched fund has doubled the size of the previous crypto fund, indicating that a16z's limited partners are increasingly interested in expanding their exposure to crypto startups.

However, in the past year, the crypto market has undergone significant changes, and a16z has faced many unexpected challenges. In particular, in recent months, crypto-native firms like Paradigm and Electric Capital have further risen, raising substantial funds to challenge a16z's market dominance.

Moreover, a16z has also had to endure the challenge of personnel departures. In January of this year, a16z partner Katie Haun announced her departure and took several colleagues with her to form Haun Ventures, which successfully raised $1.5 billion, with $500 million for early-stage investments (directly investing in equity and tokens) and $1 billion for an "accelerator" fund.

It is reported that the $4.5 billion Crypto Fund IV will be led by a16z general partner Chris Dixon. A few months ago, Chris Dixon engaged in a heated debate on social media with Twitter founder Jack Dorsey and others regarding Web3 issues, defending the Web3 industry against critics, which significantly enhanced his public image.

Chris Dixon is very optimistic about the development of Web3. He has stated that ownership and control in Web3 are decentralized, allowing users and builders to "own" internet services through NFTs and FTs. NFTs grant users property rights, meaning the ability to "own" a part of the internet. Web3 offers a new way that combines the advantages of previous eras, and now is an early stage of this movement, making it a good time to participate.

2. Helping Crypto Startups Secure Enough Capital to Weather the Storm in a Bear Market

In recent weeks, the collapse of the Terra ecosystem and its stablecoin UST has had a huge impact on the entire crypto market, leading many investors and entrepreneurs to become increasingly skeptical about this emerging industry. With UST evaporating hundreds of billions of dollars in market value almost overnight, many have called for federal legislators to expedite the creation of regulations to control the crypto industry.

On the other hand, the global cryptocurrency market cap has fallen from nearly $3 trillion to $1.3 trillion, leading many to question a16z's decision to launch a massive Web3 fund during this market downturn, as cooling markets typically scare traditional companies away from continuing to bet on cryptocurrencies. However, a16z Crypto partner Arianna Simpson explained:

"Other investment firms may likely withdraw, but we will not. The size of a16z's new fund at $4.5 billion shows that we are excited about this industry and firmly believe in its future development."

In fact, due to recent turmoil in global stock markets (with Robinhood and Coinbase both down over 75% since their debuts), many crypto investors believe the industry's outlook is not so optimistic. Observers predict that a global financial turmoil era is approaching, and not only the crypto industry but other financial sectors will also face challenges.

"Interestingly," when a16z launched its previous blockchain fund, the crypto market was also on the brink of collapse, but after a16z entered the scene, a quick recovery occurred, even pushing Bitcoin and Ethereum prices to all-time highs. Frankly, during market downturns, many new entrepreneurs may feel uncertain about the future and worry about not having enough capital available during a "crypto winter." In this regard, a16z clearly has a significant advantage, as this "established venture capital" firm possesses substantial capital, which can help its portfolio companies continue to scale their businesses.

As Arianna Simpson said:

"We cannot predict the future state of the crypto market, but a16z will work closely with our portfolio companies to ensure they have enough capital to weather the storm during a bear market."