Linda Xie's Scalar Capital stops investing, is the crypto fund entering a tough time?

Written by: Zen

Source: PANews

On September 18, Linda Xie, co-founder and managing director of the crypto venture capital firm Scalar Capital, announced on social media platform X that she would no longer serve as a full-time investor and would return to the industry to focus on building. Scalar Capital will no longer deploy new capital in the future. Another co-founder, Jordan Clifford, also shared this news and mentioned that he would return to family and personal hobbies. According to The Block, Linda and Jordan will continue to serve as managing directors, while their fund will enter maintenance mode.

This means that the crypto fund Scalar Capital, which has been operating for six years, is officially closing its doors.

Former Coinbase Employees Team Up, with a16z as One of the Investors

Scalar Capital was co-founded in 2017 by Linda Xie and Jordan Clifford, who raised $20 million the following year with supporters including a16z partner Chris Dixon, Coinbase co-founder Fred Ehrsam, and angel investor Elad Gil. Over nearly six years, Scalar has invested in nearly 30 crypto projects, including the decentralized social protocol Farcaster, the L2 privacy solution Aztec Network, and the Web3 music company Sound.

Linda Xie is highly regarded in the cryptocurrency and blockchain technology fields and is widely considered one of the most outstanding women in the industry. Linda studied economics at the University of California, San Diego, and interned in risk management at insurance giant AIG during the summers of her sophomore and junior years. It was this job that introduced her to Bitcoin in 2011, sparking her strong interest in this decentralized system.

In early 2014, American retail giant Overstock.com partnered with the American cryptocurrency exchange Coinbase to officially accept Bitcoin payments, leading to broader acceptance of Bitcoin and its entry into the mainstream. As a result, Linda decided to join Coinbase, writing to them and quickly receiving an invitation. Coinbase invested heavily in regulatory permissions and compliance, working closely with law enforcement. They followed strict identity verification procedures to comply with regulations such as KYC and AML, and tracked and monitored the transfer of crypto assets.

Upon joining Coinbase, Linda's main role was to collaborate with law enforcement to help apprehend criminals, which piqued her interest in the open-source privacy project Monero. Later, Linda became a product manager at Coinbase, where she met Jordan Clifford.

Jordan Clifford and Linda Xie

Software engineer Jordan was on the same team as Linda. He earned a Bachelor’s degree in Computer Science from Carnegie Mellon University in 2007 and later worked as a business analyst at Capital One for several years, moving through various startups before joining Coinbase in 2016. When the company began to experience rapid growth, Linda realized it was the best time to leave Coinbase and start her own venture.

Linda wanted to become an investor, to gain a deeper understanding of cryptocurrencies, to study new trends in the space, and to engage with smart teams in the industry, so she decided to commit full-time. She also considered creating her own project but was passionate about many different areas of cryptocurrency and did not want to focus solely on one. Notably, Linda's husband, Will Warren, is the co-founder and CEO of DEX infrastructure provider 0x Labs, and they support each other in their respective careers, with Linda serving as an advisor to 0x.

The Scalar Capital website does not publicly disclose its investments, but according to incomplete statistics from PANews, its investments over the past three years have mainly focused on verticals in DeFi, social, infrastructure, and tools.

Its DeFi investments include the DeFi derivatives protocol Perennial, the fixed-rate lending protocol Element Finance, on-chain structured products Ribbon Finance, and the DEX aggregation protocol Li.Fi; social projects include the Web3 social platform Lines, the decentralized social protocol Farcaster, and the company behind the decentralized social network protocol Farcaster, Merkle Manufactory; infrastructure and tools startups include interoperability protocol Connext Labs, L2 privacy solution Aztec Network, DAO voting platform Snapshot Labs, and DAO management tool company Parcel.

In addition, Scalar has invested in Web3 music company Sound, South African startup NFTfi, and other NFT projects, as well as the recently disclosed Web3 marketing company DeForm.

The Good Days for Crypto Funds Are Over, U.S. Regulations Intensify Financing Difficulties

In response to Linda Xie's tweet, investors from crypto VCs such as a16z, Paradigm, and Pantera left supportive comments, highlighting her popularity in the crypto circle. Currently, she has not clearly stated her next direction, but some investors have expressed their willingness to connect and support her upcoming projects.

Although the two co-founders did not disclose the reasons for pausing Scalar Capital, given their qualifications and popularity, it would not be difficult for them to continue fundraising and operating a fund in the crypto space. However, in reality, as the crypto market remains in a bear phase, crypto funds are also facing challenges. The tightening of regulations, the industry bear market, and the shift in market interest towards AI have made institutional investment and fundraising increasingly difficult.

Jocy, founder of IOSG, stated after attending Token2049, "At an exclusive event hosted by the Medici family, about half of the 120 attendees were VCs, and of those 60 VCs, about 90% of the funds are currently fundraising."

Recently, PANews reported that several well-known institutions claimed they are currently or will soon be raising new funds. Paradigm recently stated that it will not abandon investments in the crypto space and plans to raise a $1 billion fund by the end of this year or early next year; Electric Capital plans to raise $300 million for its new fund; Mocha Ventures is seeking €30 million for its crypto fund; HashKey Capital is fundraising for its first secondary crypto market fund. These funds will undoubtedly inject energy into the next bull market, and while top funds may still thrive, mid-tier funds may not find it as easy.

In Jocy's view, under the pressure of U.S. regulations, fundraising for funds has become very difficult. They believe that with their brand and influence, Asian Chinese LPs will be more generous in their support. However, contrary to the bustling scene of the 2049 event, most crypto-oriented LPs are tightening their belts due to the bear market, while traditional LPs are falling into skepticism about the value and use cases of this industry.

According to a report from Swiss investment advisor 21e6 Capital AG, as of August this year, 97 out of over 700 cryptocurrency funds worldwide have closed. The institution stated, "Most funds have positive returns, but in many cases, this is not enough to attract capital."

Previously, PANews also reported that the well-known crypto investment firm 10T Holdings, which has three funds, is currently "out of ammunition," having deployed all its capital and can only wait for the next bull market or further openness to IPOs for crypto institutions to exit their previous investments.

Perhaps waiting for the bull market alongside 10T are many more crypto funds that are "stuck."