How did the world's largest crypto fund a16z raise $2.2 billion?

This article is an original piece by Chain Catcher, authored by Gu Yu.

Despite the ongoing market turbulence, cryptocurrency venture capital firms continue to increase their investments. In recent months, several well-known crypto VC firms have completed fundraising for new funds, preparing ammunition for future investments.

On March 26, Dragonfly Capital announced the launch of its second fund, totaling $225 million; on May 4, Multicoin Capital announced the completion of fundraising for its second venture capital fund, totaling $100 million; on May 14, Framework Ventures raised $100 million for its second fund; on May 25, 1confirmation announced it had raised $125 million for its latest crypto fund; and on June 23, Blockchain Capital announced it had raised $300 million for its fifth venture fund.

On June 24, a16z directly increased the fundraising scale of its crypto venture capital fund by an order of magnitude, raising over $2.2 billion for its third crypto fund, Crypto Fund III, becoming the largest crypto VC firm by assets under management. So, why has a16z been able to attract such a large amount of funding? How has it established its position in the crypto world?

1. Early Entrant

Compared to most native crypto VC firms, a16z was initially a venture capital firm focused on the internet sector. Founded in 2009, it invested in well-known companies such as Facebook, Twitter, Groupon, and Skype, managing over $10 billion in assets, and had already risen to the top tier of VC firms before entering the crypto industry.

a16z founder Marc Andreessen is a former co-founder of the famous Netscape company, which invented the first graphical web browser. This innovation is considered crucial in promoting the popularization of the internet and bringing it into millions of homes. At the same time, Andreessen's classic quote, "Software is eating the world," has spread widely in the internet field, and his particular focus on software quickly attracted a16z to crypto technology.

In Andreessen's view, crypto represents a structural shift in how technology and the world operate, enabling many untrusted participants in the network to establish consistency and trust, which is the most significant positive meaning of crypto technology.

After internet entrepreneur and Bitcoin believer Chris Dixon joined in 2013, a16z officially began investing in the crypto field, with its first investment being the cross-border payment solution Ripple. In the same year, it also invested in the cryptocurrency exchange Coinbase. Both projects later reached peak valuations/market caps of over $10 billion, and these successful investments solidified a16z's confidence in the crypto market's prospects.

To date, a16z has launched three crypto funds, and each time a new fund is announced, a16z publishes an announcement article, each with a different focus. For example, the first article focuses on introducing its investment philosophy, the second on investment directions, and the third on introducing several heavyweight new employees. From these different focuses, we can identify important reasons for a16z's success.

In June 2018, a16z officially established a $350 million crypto fund, mentioning five main investment philosophies: first, being long-term investors, building investments that can be held for over 10 years; second, "all-weather" investing, actively investing even during "crypto winters"; third, providing operational support to entrepreneurs, with an operations team of over 80 people assisting in recruitment, marketing, and more; fourth, having flexibility in stages, asset types, and regions; fifth, focusing on non-speculative projects.

These investment philosophies ensure that a16z can maximize the discovery of quality projects based on the characteristics of the crypto industry and projects, leveraging its rich resources to help projects grow.

In April 2020, a16z established its second crypto fund, totaling $515 million, and also discussed future investment directions. These include next-generation payment methods, where crypto payments can significantly reduce friction and provide a pleasant user experience; value storage, with Bitcoin gaining acceptance and adoption globally; DeFi, which opens the door to financial components with programmable trust, scarcity, and value as new building blocks; new ways for creators to monetize, allowing creators to use token models to let fans participate directly in their success rather than relying on centralized platforms that charge high rents to attract audiences; and Web3, where high-performance programmable blockchains will make decentralized network development easier.

Currently, these investment directions align well with subsequent trends such as the significant rise in Bitcoin prices, the emergence of multiple public chain ecosystems, the explosion of the DeFi and NFT markets, and the rise of social token platforms, reflecting a16z's keen understanding and grasp of market trends.

This month, a16z established its third crypto fund, also totaling $515 million, emphasizing its rich talent pool and announcing the addition of five heavyweight employees, including former SEC Division of Corporation Finance head Bill Hinman, former senior advisor to President Biden Tomicah Tillemann, former Deputy Secretary of the Treasury Brent McIntosh, and the first VP of Communications at Coinbase Rachael Horwitz.

Previously, when a16z established its first crypto fund, it invited Katie Haun, who had created the first federal cryptocurrency working group as a prosecutor at the U.S. Department of Justice, to serve as a partner. In 2020, a16z again invited former head of the New York Stock Exchange's regulatory department and former head of the New York State Department of Financial Services Anthony Albanese to join as Chief Regulatory Officer of the crypto department.

It is evident that a16z's ability to persuade executives from capital markets and government officials to join its team is one of its significant advantages, helping a16z enhance its competitiveness in terms of vision and resources while avoiding unnecessary regulatory troubles, especially in the current early stage of the crypto market with unclear policies.

2. Outstanding Investment Performance

The performance of any venture capital firm ultimately depends on the performance of its investment targets, and a16z's ability to attract over $2.2 billion in funding is also due to its sharp investment vision, which has brought substantial returns to the fund.

To date, a16z's highest single investment return project is Coinbase. After initially investing in Coinbase in 2013, despite the crypto market's ups and downs, a16z participated in every subsequent round of investment in Coinbase, totaling eight investments. Such a situation is still rare in the history of the venture capital industry.

"We're excited to be able to continue investing in it because Coinbase represents the best part of a completely different world. It is a company that not only brings Silicon Valley's sharpness into its products and design but also takes regulations and compliance seriously," a16z partner Katie Haun stated regarding this matter.

At the time of Coinbase's IPO, a16z became its second-largest shareholder with a 14.8% stake. After recently reducing its holdings worth approximately $4.375 billion, the remaining shares are still valued at about $3.13 billion, making a16z the largest external winner from Coinbase's IPO.

Additionally, Coinbase also completed its layout in mainstream blockchain sector leading projects early on, investing in projects like Filecoin in 2017, Chia, Dfinity, and MakerDAO in 2018, and leading investments in Compound, Dapper Labs, and Arweave in 2019. Today, these projects have almost all become leading blockchain projects with substantial returns.

Overall, a16z's investment style shows a strong preference for leading projects in their respective sectors, often leading the rounds. In August 2020, just as DeFi was exploding, a16z quickly invested in the leading DEX project Uniswap, and by the end of the year, it invested in the leading NFT company Dapper Labs and the leading Layer 2 project Optimism. This year, after the rapid emergence of the Solana ecosystem, a16z quickly led a $314 million financing round for the project, which it had previously missed.

At the same time, Chain Catcher has reviewed a16z's publicly disclosed investment projects this year, noticing that a16z's investment pace has significantly accelerated, with a total of at least 18 crypto projects invested in, accounting for over one-third of its historical total investment count, with about half of the projects being lead investments.

From an investment direction perspective, a16z's investments this year have clearly leaned towards DeFi application projects and NFT projects, accounting for about half of the investment count. In previous years, infrastructure projects in public chains were a16z's investment focus, with investment targets including Near, Arweave, Orchid Protocol, Celo, Oasis Labs, and Dfinity, with very few investments in application projects.

However, this year, public chain/platform projects remain a16z's investment focus in terms of investment amount, with its top three investment projects being the development companies of the Solana and Flow public chains, as well as the blockchain gaming platform Forte, all raising over $100 million.

3. Commitment to Industry Development

In addition to supporting the growth of quality projects in the industry through investments, a16z also places particular emphasis on disseminating its industry philosophy and popularizing industry knowledge through various means, contributing to the construction of the blockchain industry in terms of talent, resources, and regulation.

In fact, a16z's official website resembles a learning-oriented site rather than an information display site like most venture capital firms.

Since 2014, a16z partners have been writing numerous articles on the website to promote blockchain concepts and cryptocurrencies, discussing topics such as the crypto economic system and blockchain governance. Among these, several classic industry articles have emerged, such as "Why Bitcoin Matters" and "Past, Present, Future: From Cooperatives to Crypto Networks."

At the same time, a16z has invited well-known figures from inside and outside the industry to discuss crypto technology and produce audio podcasts, enriching its external perspective through dialogue. Additionally, a16z is accustomed to integrating quality reading resources from the industry, organizing links to high-quality articles based on themes for readers to consult, and has created an industry glossary.

In early 2020, a16z invited over 20 industry figures to operate an online video course called "Crypto Startup School," covering foundational knowledge of crypto technology and important considerations for establishing crypto companies, such as governance, marketing, fundraising, and compliance, providing comprehensive information support for crypto entrepreneurs.

In June 2020, a16z launched the "Talent x Opportunity Fund," aimed at investing in talented and innovative entrepreneurs who lack educational backgrounds and resources. Each entrepreneur can participate in a 10-month training program, with experienced entrepreneurs providing online guidance.

In May 2019, a16z organized regulatory agencies in Washington and its crypto investment portfolio companies to explain the potential of this emerging technology, blockchain, to senior government agencies that significantly impact the cryptocurrency industry, with participation from former CFTC Chairman J. Christopher Giancarlo and others.

It is clear that a16z is making significant efforts to promote the dissemination of crypto concepts, attracting more entrepreneurs and builders in the crypto industry, expanding the "cake" of the entire crypto market, while also "pulling" quality projects and talent in the industry closer to itself, laying a solid foundation for capturing its long-term value.

Through the aforementioned achievements and actions, a16z has positioned itself as the most influential venture capital firm and industry builder in the crypto world, closely tied to the future of the crypto industry, while continuously injecting resources and funds from the internet sector into the crypto market.

"The history of the crypto industry shows that while asset prices may fluctuate, innovation continues to increase in every cycle," a16z stated in a recent blog post. "Crypto technology is not only the future of finance but, like the early internet, has the potential to change every aspect of our lives and drive the next wave of computing innovation."

a16z partner Chris Dixon once described blockchain as the pirate flag rising again in Silicon Valley, leading everyone into interesting, slightly dangerous, and disruptive activities. Now, with substantial funds in hand, a16z and its investment projects are steering the pirate ship toward further horizons, and a new era may be slowly unfolding.