How did crypto queen Katie Haun get through the darkest moments of cryptocurrency?

Original Title: “Katie Haun launched a $1.5 billion crypto fund---and then the industry blew up. How has she navigated crypto’s year from hell?”

Source: Fortune Magazine

Translation by: 0x26, BlockBeats

On a sunny morning in April, Katie Haun trudged along a winding path around the Stanford Dish (a large radio telescope near Stanford University) in the hills of Palo Alto. This 3.5-mile trail is a favorite of the former prosecutor turned VC, but Haun was not there for leisure. Instead, her team of 11 needed to rally to persuade the wealthy investors of her $1.5 billion firm that everything was still on track, even as the cryptocurrency industry lay in ruins.

After finishing the hike, Haun, her team, and several accompanying LPs returned to Haun Ventures' office in Menlo Park, where the team settled among more than 70 gathered LPs and founders of companies Haun had invested in. Seasoned trader Wat presented the Gartner Hype Cycle chart, long used to assess tech trends, to reassure attendees. The message conveyed was that the trough of the cycle is the true time for building.

Cryptocurrency may experience cyclical fluctuations, but this downturn was far steeper than investors had anticipated, exacerbated by the collapse of many leading projects in the crypto space. For Haun, the cryptocurrency industry's Waterloo marked the first significant setback in her rapidly rising career and carefully cultivated reputation, which had spanned from a Supreme Court clerk to a key position at the Department of Justice, and now to the pinnacle of the VC world.

Connecting the Dots

The timing was terrible. Launching a new cryptocurrency fund in the spring of 2022 was akin to opening a new chain of movie theaters just before a pandemic hit. In just a few months, the frenzied bull market (with Bitcoin peaking at $69,000) soured; high-profile projects like Terra collapsed; and the VC industry was hit by rising interest rates. By November, industry leader FTX collapsed in a massive fraud scandal, and U.S. regulators began the most aggressive crackdown in the industry's history.

As a result, Haun raised $1.5 billion—no small feat even for Silicon Valley VC firms—but many of the best opportunities had vanished. During the fundraising process, according to a fundraising document, the capital was spread across two funds, which Haun had claimed would support about two years of investment plans. But that timeline was no longer applicable.

In the second quarter of 2023, venture capital funding for crypto projects fell to $2.3 billion, more than a 70% drop from the same period in 2022, as many investors turned their attention to the hotter AI sector. The script for cryptocurrency venture capital was being rewritten.

Nevertheless, some cryptocurrency VCs are still burning through their reserve funds. For instance, Polychain Capital has invested most of its third fund, which was raised in 2022 and 2023. While it has successfully raised $200 million for a fourth fund, other cryptocurrency VCs have not been as fortunate. As of 2023, cryptocurrency VCs raised only about $2 billion, compared to over $22 billion for the entire year of 2022.

Haun Ventures is proceeding more cautiously, currently planning to spend down its cash over about three years. As of mid-June, the firm had allocated about 30% of its funds to around two dozen projects, including publicly traded, liquid tokens. These tokens include well-known cryptocurrencies like Bitcoin and Ethereum, as well as smaller market cap tokens related to projects, which are often included as part of traditional equity in venture capital. Haun Ventures declined to disclose the names of its held tokens.

Partner Rosenblum stated that during this period, the firm's investments were almost evenly split between digital tokens and traditional equity, although the firm has been emphasizing investments in startups as of 2023.

Haun Ventures has invested in companies like the NFT creation platform Zora and the Web3 infrastructure platform thirdweb. The firm also participated in the $32 million Series B funding for the privacy-focused blockchain network Aleo and supported the crypto data analytics platform Artemis. The company plans to announce more deals soon.

Like other VCs, Haun Ventures also leverages its influence to assist startups in its portfolio. When Aleo nearly lost banking services after the collapses of Silicon Valley Bank and First Republic Bank, Haun acted as a behind-the-scenes negotiator, introducing them to other banks and sending staff to help answer policy questions.

In the face of regulatory challenges in the U.S., Haun has also been seeking opportunities abroad. She recently returned from a trip to Japan, where she met with a congressman advocating for Web3 adoption.

Currently, it is too early to assess any returns for Haun Ventures, as even the firm's own LPs acknowledge that it is premature to evaluate the performance of startups. More importantly, many LPs are large investors, including sovereign wealth funds from Saudi Arabia, who are willing to take the risk. One investor from Haun's firm said, "If it goes to zero, it won't crush our portfolio."

While some may appreciate the firm's relative caution, there is still pressure for Haun Ventures to put its capital to work, as the firm, like other venture funds, charges management fees. The industry average for management fees is about 2%. Haun Ventures declined to comment on its management fees.

Rosenblum acknowledged that the firm is threading the needle in a constantly changing market: "There are two ways to go wrong: one is to move too fast," he told Fortune. "The other is to move too slowly."

A Non-Traditional VC

Like other VCs, Haun faces the challenge of honing investment strategies amid black swan events. But as a woman in a male-dominated industry, she faces even more—perhaps unfair—scrutiny, given that she raised the largest fund ever by a female founding partner.

At a venture dinner this spring, discussions turned to Haun's background. One diner suggested that while Haun might be an authority on regulation, she lacked a deep background in technology and trading. However, Haun's supporters argue that this is not important.

"She’s not an engineer, not a fixer, not a builder," Fred Wilson, co-founder of Union Square Ventures, who has co-invested with Haun, told Fortune. Wilson said that instead, Haun offers her extensive government experience and her network.

"She is one of the best networkers I have ever worked with," Wilson said. "She can meet with anyone."

Haun's networking ability has helped her rise to the top of the VC world—her story about herself has also contributed to this. While she is now known as one of the first federal prosecutors to handle cryptocurrency cases, she was not involved in the earliest cases, including the landmark takedown of the dark web marketplace Silk Road. Instead, she led a follow-up case that took down former law enforcement officials who had stolen cryptocurrency from Silk Road and later participated in investigations into the massive hacks of crypto giants Ripple and early crypto exchange Mt. Gox.

Haun gained a board seat at Coinbase through these experiences and later became a general partner (GP) at venture giant Andreessen Horowitz, where she worked for four years and invested in top companies like the NFT platform OpenSea.

"Many investors with stories transition from legal backgrounds to VC," said Rachael Horwitz, a spokesperson for Haun Ventures. "We believe Katie is undoubtedly one of the most experienced leaders and dealmakers in the cryptocurrency space."

Some in law enforcement are dissatisfied with her brief experience in the legal field of digital assets, which has helped Haun gain wealth and fame, while others who have established themselves in this field have not received the same benefits. Particularly frustrating for some is an article that referred to Haun as "Washington's top crypto cop"—a title she has never held and never claimed.

"She didn’t work in government for ten, twenty, or thirty years—she only handled a few crypto cases," said one insider. "I do commend her for playing the game smarter, not harder."

A former law enforcement official recalled an incident where a former DOJ prosecutor criticized media reports on LinkedIn, claiming they distorted Haun's role in government. This unnamed law enforcement official told Fortune that some dramatic events followed, as Haun's friends apparently pushed to have the post taken down. Soon after, the post disappeared.

This former law enforcement official said that regardless of whether the reports exaggerated Haun's achievements, she has clearly benefited immensely from her growing fame. They said, "In terms of her career in government, she positioned herself in the greatest and best place, and that’s where it all starts."

Law enforcement is a world filled with ego and secrecy, where officials can only discuss cases under specific circumstances, so professional disputes should be approached with caution. Other law enforcement officials defended Haun, pointing out that she has never misrepresented her record.

Grant Rabenn, a former DOJ prosecutor and current head of financial crime at Coinbase, said, "There are definitely people who hate her." He asserted that 99% of the detractors "don’t have her vision or her success."

The relationship between the VC world and the media is notoriously tense. While many venture capitalists consider themselves independent thinkers, some are thin-skinned and lash out at negative coverage.

However, unlike her former colleague Marc Andreessen at Andreessen Horowitz, who enjoys debating with reporters on social media, and her partner Chris Dixon, who prefers to stay behind the scenes, Haun tends to participate in mainstream media events. She has debated Paul Krugman, sat with Ezra Klein, and appeared on the cover of Fortune magazine, arguing that cryptocurrency and compliance can coexist. In May 2022, just two months after her fund launched, she shared the stage with Sam Bankman-Fried and Michael Lewis at a now-infamous conference held by the disgraced FTX founder in the Bahamas.

However, after FTX's collapse in November, Haun largely avoided the media she once courted—aside from a column she wrote for The Wall Street Journal in March 2023 and a brief interview with Bloomberg in December—her team attributed this decision to a focus on deals and work with regulators. Although she was interviewed for the cover story of Fortune last year, Haun declined multiple requests for interviews for this story.

Horwitz told Fortune that the best use of the company's time is to prioritize investing in companies.

They Will Want a Very Tight Story

When VCs invite investors to "LP Day" events, it is usually a lavish affair. Given the gloomy sentiment in cryptocurrency, Haun Ventures' gathering in April had a somewhat frugal air: large water dispensers from Peet's Coffee and picnic box lunches from La Fromagerie. LPs, founders, and the Haun team chatted on the outdoor terrace.

Brian Armstrong—Coinbase's co-founder, who began his entrepreneurial journey in the crypto industry after Haun joined Coinbase's board in 2017—also spoke, delivering his standard speech about how he hopes his company can continue to be an American company despite its struggle for survival with U.S. regulators.

The speeches at LP Day seemed to temporarily soothe investors, as no one openly complained or demanded to withdraw funds. Part of the reason may be that Haun chose not to invest in FTX, the notorious exchange run by Sam Bankman-Fried, whose parents had taught at Stanford Law School. Other top funds, including well-known names and cryptocurrency experts, chose to support the fraudster, leading to staggering losses: Sequoia Capital evaporated $200 million of its investors' money, while Paradigm reportedly marked its $290 million stake in FTX to zero last year.

After avoiding the media she once embraced, Haun's cryptocurrency promotion is now almost entirely behind closed doors. She hosts lawmakers, holds fundraising and educational meetings for major politicians, including New York Democratic Senator Kirsten Gillibrand, and invites founders like Furqan Rydhan of thirdweb to extol the benefits of blockchain.

With few deals (as one LP noted, Haun Ventures has yet to enter the race), much of the firm's energy seems focused on political advocacy. Chris Lehane, who previously led Airbnb's policy battles and was involved in Democratic political activities, said he spends about a third of his time on cryptocurrency policy advocacy, including Coinbase's newly formed global advisory council, which has a vague mission to "strengthen our efforts with stakeholders" and "deploy cryptocurrency responsibly."

Katie Haun's entrepreneurial journey is still in its early stages, and the lifecycle of her first fund is still short. Nevertheless, as cryptocurrency fights for survival, the former prosecutor has chosen to work primarily behind the scenes, forgoing the title of public supporter. Moreover, even if her firm navigates the crisis, it remains uncertain whether investors will be willing to continue betting on this tumultuous industry.

USV's Wilson told Fortune, "When they go to raise their second fund, they will want to tell a very tight story about what they did and how they responded to market changes." He added, "Hopefully, they can also talk about some successes."