What makes BlockTower different from other funds in the cold winter of "brave the rapids"?

Original Title: 《With A $150 Million Debut Venture Fund, BlockTower Is Ready To Take Advantage Of The Crypto Winter》，Alex Konrad

Translation by: Katie Gu

Cryptocurrency has changed the venture capital landscape. VCs are starting to build brands, write white papers, and launch podcasts. On social media, billion-dollar fund partners have become celebrities, predicting market trends or sharing memes for their fanbases.

The new venture capital firm BlockTower Capital, led by Thomas Klocanas, has chosen a different approach. On October 13, the crypto asset management company BlockTower launched a dedicated venture capital division along with a new $150 million fund. Recent investments by BlockTower in startups like Aptos, Lighthouse Labs, and Maple Finance belong to this new fund.

BlockTower had previously not publicized itself and even lacked an official website. Its corporate Twitter account has 10,000 followers but has yet to post a tweet.

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Unlike other funds, Miami-based BlockTower and its leader Klocanas are seeking to present robust, old-school financial relationships as their calling card. By keeping the fund size at $150 million, BlockTower hopes that the speed of its investments (10 deals so far this year) and scale (bets ranging from $500,000 to $5 million, with $20 million already deployed) will help it establish a foothold among larger, faster-moving, more well-known fund peers.

BlockTower is a financial company focused on cryptocurrency, with flagship hedge funds, market-neutral funds, and lending operations. The 31-year-old Klocanas stated that he can offer startups something that large companies cannot: a strong user base in the institutional finance sector focused on cryptocurrency, which can help expand the market and provide the assets needed for startups to launch.

Klocanas said, "We are seriously adopting the projects we invest in; otherwise, what right do we have to advise users? We want to lead by example and hope our actions speak for themselves."

BlockTower Founder's Web3 Background

French-American Klocanas worked as a sell-side analyst in London before entering Columbia Business School, where he served as co-chair of the fintech and blockchain student organization. During his MBA studies, he began working at local crypto software manufacturer and incubator ConsenSys in 2017, helping to launch new projects and taking on various business development roles. After short stints with several other crypto projects, he joined venture capital firm White Star Capital in January 2020 as a lead, helping to raise its first digital asset fund, a $50 million project supporting startups including Ledn, Paraswap, and Rally.

By the end of 2021, as cryptocurrency prices soared, Klocanas considered raising his own fund, at which point he met Matthew Goetz and Ari Paul, both 38. Goetz is a former Goldman Sachs investment banker, and Paul is a former manager of the University of Chicago's endowment. They launched their own hedge fund, BlockTower, in 2017, focusing on cryptocurrency investments in a way they believe traditional institutions cannot. In addition to a flagship fund (which can invest long-term in public markets, private markets, and cryptocurrencies themselves), they added a market-neutral fund and a credit business. A document from late 2021 showed the company had nearly $1 billion in assets. At today's prices, its assets exceed $500 million.

Through their collaboration with Klocanas, Goetz and Paul saw an opportunity to delve into the venture capital space. In this regard, Goetz has independently made over 40 investments.

Goetz told Forbes in July, "BlockTower can combine its traders' expertise and financial influence with Klocanas's deep domain expertise in startups. You can't pretend to be Crypto Native. The standards for winning venture capital franchises today are different from the venture game of the past 40 years."

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The three plan to raise $100 million and limited the fund size to $150 million at the beginning of this year. Supporters include MassMutual, French investment bank Bpifrance, former Forbes Midas List investor Roger Ehrenberg, and the Texas Teachers Retirement System.

BlockTower often targets financial crypto projects focusing on the interoperability between blockchain, credit, or payments. However, Klocanas stated that the company will also invest in "digital asset-related" businesses in areas like mobile, social media, decentralized governance, and future work, although they currently lack products focused on crypto technology, they may incorporate crypto technology as a key part of their business in the future.

Invested projects include Lighthouse and Aptos. Lighthouse is a metaverse search engine company that co-led a $7 million funding round with Accel in May of this year. Aptos is a startup founded by former Meta employees attempting to take over the "torch" from a blockchain project abandoned by Meta.

BlockTower's value is highlighted in early companies like Maple Finance. Maple Finance is a startup that helps lending businesses raise funds and lends money to other crypto token projects. There, BlockTower's lending experts provided knowledge and capital, establishing one of Maple's first lending pools.

In May of this year, BlockTower announced the sale of $3 million in tokens and formed a strategic partnership with another startup, Centrifuge, which seeks to connect real-world assets with such liquidity pools. Centrifuge's CEO Lucas Vogelsang stated that this alliance is more valuable than venture capital itself. He said, "This will bring all the technology we are developing closer to their networks, LPs (liquidity providers), and users. That’s the more exciting part."

BlockTower in the Eyes of Crypto Peers

Several peers in the venture capital field told Forbes that BlockTower plays a valuable role in the ecosystem not only as an equity investor but also as an early institutional user, bringing resources to such projects. A well-known investor focused on cryptocurrency stated, "Many other funds have not built up to support this technology, so I think this is a valuable addition to the ecosystem."

Hack VC, a company focused on infrastructure and crypto venture capital founded last year, has co-founder and managing partner Alexander Pack noting that the hedge fund division's "cross-border fund" has its own trade-offs, pointing out the "instability" of Tiger Global and Coatue in other startup investment areas. However, Pack is cautiously optimistic about cryptocurrency. He said, "If BlockTower can leverage its hedge fund to provide on-chain liquidity for seed portfolios, it can guide network effects and help its portfolio outperform competitors."

BlockTower's Attitude Toward the Winter

Another favorable factor for BlockTower may be its timing. Klocanas and his fund entered the market as cryptocurrency entered a "crypto winter," characterized by plummeting cryptocurrency prices and a noticeable decrease in venture capital. Investment tracking firm PitchBook reported that crypto companies raised $4.4 billion in the third quarter of 2022, down from $7.6 billion and $10.9 billion in the previous two quarters, a decline of about 50% compared to the same period last year.

The predicament facing BlockTower's flagship hedge fund is not a good thing for the industry. However, due to the young and small scale of its portfolio, BlockTower faces little pressure for immediate returns. Meanwhile, the company's investment pace means that, as buying prices fall and other investors pause their activities in the field, the company still has a significant amount of capital to deploy.

Many investors publicly post about having "diamond hands" or "laser eyes" (both memes related to buying and holding cryptocurrencies), but BlockTower has never publicly embraced such hype, so it has not faced strong backlash from investors who may be more dissatisfied with companies that seem to be cheering for past speculative activities. When asked if he considers himself a "Degen," Klocanas replied, "I would say I am both a crypto pragmatist and a Degen. I believe both visions exist in parallel within different time frames."

While projects like Helium face partial delisting and others like Celsius Network have gone bankrupt, Klocanas cites NFT company Sorare as an example, whose CEO confirmed on Twitter at the end of September that its dollar transaction volume, trading volume, and number of unique buyers would all be up compared to January. Klocanas believes that the days of achieving 100x quick returns from cryptocurrency investments may be over. But he added, "BlockTower is pleased to see that exits for crypto startups look more like typical venture capital returns. The significance of cryptocurrency goes far beyond trading prices."