Preview text: Are VCs the frontrunners of innovation in crypto?
Entrepreneurs are the seeds to great protocols, VCs are the fertilizers that aid in its growth using which the entrepreneurs grow the entire tree - so users can enjoy the fruits it bears.
That is in essence what any VC to any industry is - a gardener. It's a purely symbiotic relationship - and a most essential one. Within crypto, we have seen this relationship reach new heights as there has been an influx of capital to various protocols and startups. To crunch some numbers, the industry has seen over $27B invested just as of November. This amount is mind-numbing. But so is the number of protocols that have emerged.
Venture capital has always been at the forefront of innovation - where the money goes, innovation grows. But could it be that innovation is being indirectly controlled by these funds? It was reported that over $400M worth of DeFi deals were declined between the second and third quarter of 2021. Does this stop protocols from growing?
These questions are unsettling. But their answers aren't.
In this Magnify, I aim to explore the apparent innovation centralization by investment funds, the rise of Venture DAOs to counteract that and why all of it is closely tied with the growth of the industry.
Let's dive in.
That is a cheesy line I picked up from one of Hugh Jackman's hilarious marketing video for RM Williams. If you've watched the ad then you'd know what I intend to talk about here.
Crypto may be a labyrinth, but it is one where it is worth spending time getting lost in. Most VCs upon entering the space see a plethora of opportunities. From trading/brokerage firms to service providers in DeFi - there is a sea of protocols that a big-pocketed investor can favor. But where must they begin?
The first option is to get into the market earlier than most others. That is how Andreessen Horowitz entered the crypto space back in 2013 when they invested about $20M in Coinbase. Today, a) Coinbase is a publicly traded company on the NASDAQ and b) is one of the most active crypto investment firm under its investment arm Coinbase Ventures.
The second option is to carefully examine the industry from a researcher's standpoint and use previous experience to invest in truly disruptive companies. That was Paradigm's approach when it was first launched. Fred Ersham's experience as the Coinbase co-founder combined with Matt Huang's knowledge of the industry (from his exposure to crypto at Sequoia Capital) was the perfect seed for an investment arm to grow. And the results of this combination have bore fruit - recently, the firm announced an additional $2.5B crypto fund.