Sequoia Capital Partner Maguire: Crypto will be the biggest trend in the next 30 years

Author: Gu Yu, Chain Catcher

After investing in multiple crypto projects, the renowned venture capital firm Sequoia Capital officially launched an independent crypto investment fund on February 17, primarily investing in liquidity tokens and digital assets, which has caused a huge stir in both the venture capital and crypto industries.

Although the fund's size is only $500-600 million, accounting for less than one-tenth of its total assets under management, this is Sequoia Capital's first sector-specific fund since its establishment in 1972. In October last year, Sequoia Capital stated that it was breaking the traditional organizational structure based on fund cycles by forming a Sequoia Capital fund that supports open liquidity portfolios and a single permanent structure through registered investment advisors and other means.

"This new structure eliminates all artificial time constraints regarding how long we can work with companies. It allows us to participate in their boards and help them realize their potential over decades," Sequoia Capital stated.

The Sequoia Crypto Fund is the first sub-fund of the Sequoia Capital fund and represents the first public progress of Sequoia's aforementioned reforms. Next, Sequoia Capital also plans to establish expansion funds and ecosystem funds. "We hope to achieve a balance that allows us to act quickly and flexibly with expert-level crypto knowledge, while ensuring that the knowledge we gain is shared throughout Sequoia Capital," said Sequoia Capital partner Michelle Bailhe.

As one of the oldest and most influential venture capital firms in the world, Sequoia Capital has always maintained a keen sense of market trends and a quick response speed, which is reflected not only in the aforementioned institutional reforms but also in its long-term exploration of the crypto field.

1. Sequoia Capital is serious about the crypto track

How much does Sequoia Capital value the crypto track? This can be seen in the latest interview statements from Sequoia Capital partner Maguire. In an interview with The Block, Maguire confidently stated that cryptocurrencies will become the biggest trend in the next 20-30 years.

This is the conclusion Sequoia Capital has drawn after nearly eight years of exploring the crypto track. Since 2014, Sequoia Capital has been exploring the entire track, investing in multiple cryptocurrency projects through equity and token trading. Among them, Sequoia Capital China has invested in crypto projects such as Huobi, Bitmain, Nervos Network, Conflux, and Animoca Brands, while Sequoia Capital itself has invested in crypto projects including Filecoin, FTX, Fireblocks, StarkWare, BitClout, Iron Fish, and Parallel Finance.

On the same day it announced the establishment of the crypto fund, Sequoia Capital also announced it led a $7 million financing round for the Web3 financial management tool Multis, which provides software layers for web3 organizations to manage their crypto finances.

Some crypto projects invested by Sequoia Capital in the past year

As for Sequoia Capital itself, according to incomplete statistics from Chain Catcher, the firm has made 12 investments in at least 10 projects since the beginning of last year, covering almost all mainstream tracks, including Layer 1, Layer 2, NFT, CeFi, DeFi, and privacy. It is reported that over 20% of Sequoia Capital's total investments in 2021 went into the cryptocurrency sector in the U.S. and Europe.

Additionally, shifting from primarily investing in leading projects in the early stages, Sequoia Capital has also begun investing in relatively undervalued early-stage projects since November last year, reflecting a deeper involvement in the crypto industry.

Notably, in December last year, Sequoia Capital minted the original investment memo for YouTube from 2005 as an NFT and auctioned it on OpenSea to commemorate YouTube's position in the development of the internet and to celebrate the unpredictable advantages of foundational technologies like crypto.

In January this year, Sequoia Capital briefly changed its official Twitter bio from "We help daring people build legendary companies, from ideas to IPOs, etc." to "We help daring people build legendary DAOs, from ideas to token airdrops."

So, how does Sequoia Capital specifically view the crypto industry? We can glean some insights from an article discussing the aforementioned NFT minting event written by the firm in December last year.

The rise of blockchain echoes the rise of the internet itself, where direct and free flow of information between people lays the foundation for the direct and free flow of value on the blockchain. This is both a cultural and psychological shift, as well as a technological shift, which will realize a new economic reality worldwide. In the world of NFTs, anyone can create digital assets, and anyone can invest, bringing unprecedented diversity to asset valuation and trading.

……

In the next stage of digital evolution, the role of gatekeepers in distribution will diminish. Creators will gain control over their assets and shift them from aggregators to network participants. But the impact of blockchain goes far beyond the valuation and trading methods of currencies and digital goods. Decentralized protocols and new entities like DAOs may reshape everything, from how products are built to how people communicate and create communities.

We cannot predict the scope of the transformation, nor can we predict how it will reshape culture. At these early stages, we do not know what factors will catalyze crypto or in which direction it will move. These catalysts could be technological, regulatory, or cultural. It is still unclear whether this shift comes from the new currency diversity in the world or from blockchain-supported decentralized applications—or both.

But it seems clear that blockchain technology is beginning to constitute a new protocol for digital interaction at a fundamental level. Innovation is accelerating at both the application layer above Layer 1 blockchains and the application layer below Layer 1: one of the most exciting developments we see is the pursuit of a protocol that allows different blockchains to interoperate smoothly. This work can be compared to TCP/IP for crypto. What this can unlock is something we can only imagine. Early internet enthusiasts knew it would change everything, but they could not foresee trading stocks on an iPhone. Today's crypto technology is similar.

In an article titled "Ask Not Wen Moon--Ask Why Moon" written by Sequoia Capital partner Michelle Bailhe at the end of 2021, she also discussed her views on the developmental stages of the crypto industry:

Blockchain will rewrite the way we own, sell, buy, trade, exchange, and reward. As software permeates our world, cryptocurrencies (software currencies) will also permeate currency and everything we do with it.

……

Stage One: Isolation. Crypto exists as an island, disconnected from the non-crypto world. Crypto builds its core protocols independently (think of TCP/IP for the internet, and Layer 1 blockchains like Bitcoin, Ethereum, and Solana for crypto). The protocols are inseparable from their native tokens, and various tokens create demand for exchanges and additional financial services, most legacy firms lack the technology and regulatory willingness to meet this demand, allowing crypto natives to fill this gap. The crypto-native equivalents of each financial service emerge roughly in historical order: currency, forex, lending, derivatives, insurance, options, ETFs, etc.

Stage Two: Connectivity. Connecting the crypto and non-crypto worlds. The non-crypto world sees the value of crypto and builds/buys infrastructure to access it. Custodial/wallets, crypto fiat on/off ramps, data feeds, blockchain-specific infrastructure, and development tools grow exponentially during this period. New use cases from NFT art communities to gaming to Web3 social networks attract new users. As the mass market begins to participate in the crypto market, competitive pressure greatly simplifies user experience and lowers access barriers. In the next decade, the number of users and developers able to access crypto will increase by 10-100 times. We believe we are just at the beginning of Stage Two.

Stage Three: Maturity. The merging of the crypto world and the non-crypto world, so they are no longer different. Like mobile devices, once crypto access is sufficiently widespread, applications will have the foundation they need to fully realize their potential. They will bridge the gap from crypto to everyday life. It is important to clarify that many people are already building in areas like consumer finance, DeFi, NFTs, and Web3, but only a few hundred million people and institutions can access them. As access expands, user engagement with applications will increase by an order of magnitude.

Given these ideas, Sequoia Capital's significant investment in the crypto industry makes perfect sense. The establishment of a separate crypto fund by Sequoia Capital will not only continue its investment in the crypto industry but also further support industry development from multiple levels, including staking and governance.

"While we have invested in equity and tokens over the past five years, many project founders have asked us to play a more active role in managing tokens, including staking, providing liquidity, participating in governance, and trading through their platforms." Sequoia Capital stated in its announcement, "Our network of builders in Ethereum, Solana, major DeFi protocols, and other areas has also urged us to do so."

As for the next investment direction, Maguire stated in the interview that Sequoia Capital is particularly interested in cross-chain interoperability and GameFi projects, noting that multi-chain is the future. Currently, Sequoia Capital is monitoring developer activity across networks, including Terra, Avalanche, NEAR, Polkadot, and Cosmos.

Another Sequoia Capital partner, Michelle Bailhe, stated in an interview with CoinDesk that the fund is investing in "full-stack" projects, including Layer 1, Layer 2, data layers, decentralized finance (DeFi), centralized applications, payments, gaming, Web 3, NFTs, and consumer and enterprise infrastructure.

"If the crypto market enters a bear phase, the fund is expected to be fully deployed within a year; if it enters a bull phase, the fund will be fully deployed in more than a year." Maguire said.

Additionally, Maguire revealed in an interview with the Financial Times that Sequoia Capital will adopt a "20-year" approach to its cryptocurrency holdings, avoiding trading tokens unless there are "special circumstances."

2. Venture Capital Firms Crowding In

In fact, apart from Sequoia Capital, most well-known venture capital firms globally have already entered the crypto industry. Referring to the Hurun Global Unicorn Investment Institutions Top 100 list released in 2021, almost all institutions, except for a few like Alibaba and Tencent, have invested in crypto projects.

Below, Chain Catcher will provide a brief overview of the crypto industry layouts of some of these venture capital firms.

Tiger Global

Founded in 2001, Tiger Global includes private equity and public equity funds and is one of the most well-known venture capital firms globally, ranking second in the 2021 Global Unicorn Investment Institutions Top 100 list.

Since March 2021, Tiger Global has begun to significantly invest in crypto projects, including the cryptocurrency tax automation platform TaxBit, the Mexican crypto exchange Bitso, the blockchain security auditing company CertiK, the crypto payment company MoonPay, the blockchain analytics company TRM Labs, the decentralized streaming service Livepeer, the decentralized indexing protocol The Graph, the privacy blockchain project Aleo, the Solana decentralized trading protocol Serum, and the Flow NFT platform Unblocked, among at least 15 projects. Tiger Global is also one of the traditional venture capital firms with the most investments in crypto projects.

Some of Tiger Global's crypto investment portfolio

SoftBank Vision Fund

SoftBank is one of the most well-known venture capital firms globally, famous for its thousands of times return on Alibaba, with other notable investments including Uber, WeWork, Didi, ARM, etc., currently managing over $100 billion in assets.

Since June 2021, the SoftBank Vision Fund has accelerated its investments in the crypto industry, including the privacy blockchain project Aleo, the cryptocurrency exchange FTX, the blockchain analytics company Elliptic, the football NFT collectibles platform Sorare, the parent company of Grayscale DCG, the NFT sandbox game The Sandbox, and the Ethereum scaling solution provider Polygon, among at least 10 crypto projects, several of which are direct investments in project tokens.

Accel

Accel is an early and growth-stage venture capital firm founded in 1983, with notable investments including Dropbox, Facebook, Slack, Spotify, and Supercell.

Since July 2021, Accel has invested in the Ethereum developer platform Tenderly, the on-chain data tool Nansen, the crypto tax platform CoinTracker, the developer of Axie Infinity Sky Mavis, and the digital football NFT collectibles platform Sorare, among at least 6 crypto projects.

Goldman Sachs

Goldman Sachs Group was founded in 1869 and is one of the oldest and largest investment banks in the world.

Since 2021, Goldman Sachs has invested in blockchain infrastructure service providers Blockdaemon, crypto custody companies Anchorage, crypto fund management companies One River Digital, and crypto data companies Coin Metrics, among at least 4 crypto projects.

Insight Partners

Founded in 1995, Insight Partners is a leading global private equity investment firm focused on investing in late-stage VC and growth companies, particularly software development companies. It currently manages over $30 billion in assets, has invested in over 400 companies, and has completed over 200 mergers and acquisitions for its portfolio companies.

Insight Partners' public crypto investments include the NFT studio Candy Digital, the cryptocurrency wallet provider ZenGo, the crypto tax software company TaxBit, and the cryptocurrency exchange FTX, among at least 4 projects.

a16z

Although a16z was founded in 2009, it quickly invested in well-known companies like Facebook, Twitter, Groupon, and Skype, managing over $10 billion in funds, becoming one of the top venture capital firms globally.

At the same time, a16z is also one of the earliest and most deeply invested venture capital firms in the crypto industry, with most mainstream crypto projects like Coinbase, Compound, Dapper Labs, Arweave, Solana, and Opensea backed by a16z's investment, making it one of the most influential venture capital firms in the crypto industry.

In June 2021, the firm announced the launch of a new crypto fund with a scale of $2.1 billion, and it has recently been reported that it plans to raise up to $4.5 billion for a new cryptocurrency fund.

Coatue

Coatue is a global investment management firm founded in 1999, focusing on public and private companies in the technology, media, and telecommunications sectors, with assets under management of $48 billion.

Since February 2021, Coatue has invested in at least 9 projects, including the Flow public chain developer Dapper Labs, the Mexican crypto exchange Bitso, the blockchain analytics company Chainalysis, the Web3 work platform Braintrust, the NFT trading platform OpenSea, the blockchain auditing company CertiK, and the crypto analytics tool Dune Analytics, mostly as a lead investor.

Coatue's crypto investment portfolio

USV (Union Square Ventures)

USV is also a well-known venture capital firm globally, having invested in over 100 companies that leverage the power of the internet to reshape markets since 2003.

USV began investing in the crypto track in 2013, with its earliest project being Coinbase. Since then, it has also invested in projects like Algorand, Filecoin, Blockstack, and recently led investments in many crypto projects such as Matter Labs, Mirror, Dune Analytics, and 3Box Labs, making it one of the most active investors in the crypto industry.

In January 2021, a USV partner stated that the firm plans to invest "about 30%" of its new $250 million fund in the crypto industry.

Notably, USV analyst Joel Monégro published the famous "Fat Protocols" thesis in 2016, arguing that in the blockchain technology stack, due to data being open-source and the design of token incentive systems, value would concentrate at the protocol layer, with only a small portion of value distributed at the application layer. This thesis has had a profound impact on the development of the crypto industry.

Lightspeed Venture Partners

Founded in 2000, Lightspeed Venture Partners is a global venture capital fund that has invested in over 400 companies, one-third of which have gone public or been acquired. Notable investments by Lightspeed include Snapchat, Nest, OYO, GrubHub, and it manages over $10 billion in assets.

Lightspeed is also one of the traditional venture capital firms most actively participating in the crypto ecosystem today, having invested in at least 16 crypto projects since last year, including the DeFi aggregator Zerion, the public chain developer Terraform Labs, the crypto market maker Wintermute, the Web3 development platform Alchemy, the cryptocurrency exchange FTX.US, the metaverse project Everyrealm, the Web3 infrastructure developer Mysten Labs, and the Layer 2 solution Arbitrum.

In October 2021, the firm stated that it had invested $300 million in crypto startups. In November, Lightspeed also launched a $100 million special fund in collaboration with FTX and Solana Ventures to invest in studios and startups creating blockchain games in the Solana ecosystem.

Some of Lightspeed's crypto investment portfolio since 2021

Additionally, Founders Fund has invested in at least 5 projects, including the Ethereum Layer 2 developer StarkWare, the Polkadot ecosystem DeFi project Parallel, the NFT music platform Royal, the NFT trading platform Opensea, and the cryptocurrency custody platform Paxos.

DST Global has invested in the crypto financial services platform Matrixport, the crypto custody and asset management platform Cobo, the cryptocurrency exchange and wallet provider Blockchain.com, the crypto retail broker Bitpanda, and the crypto lending company Figure, among at least 5 crypto projects.

Qiming Venture Partners has invested in the cryptocurrency wallet Imoken, the NFT data aggregation platform NFTGo, and the blockchain infrastructure provider InfStones, among at least 3 projects, all as lead investor.

IDG Capital has invested in the mining machine manufacturer Bitmain, the cross-border payment platform Ripple, the cryptocurrency exchange Coinbase, the stablecoin USDC issuer Circle, the cryptocurrency wallet ImToken, the public chain Klaytn, and the crypto security auditing company CertiK, among at least 7 crypto projects.

KKR made its first investment in a crypto project last December, leading a $350 million Series D financing round for the institutional-grade digital asset solution provider Anchorage at a valuation slightly above $3 billion. Its press release stated that this is KKR's first equity investment in the crypto field. Subsequently, KKR has also been reported to be interested in investing in the blockchain game developer Animoca Brands.

Overall, most venture capital firms began investing in the crypto track in mid-last year, primarily focusing on CeFi and infrastructure projects, often appearing as lead investors. Of course, due to fund structures, most investments are equity investments.

As one of the most prestigious venture capital firms, Sequoia Capital's initiative to adjust its fund structure and establish a separate crypto fund will send a clearer signal to the venture capital community that the era of crypto may be approaching.