Sinéad O’Sullivan is a former Senior Researcher at Harvard Enterprise Faculty’s Institute for Technique and Competitiveness.
There’s nothing worse than having $7bn in your again pocket and never having the ability to spend it. Simply ask Chris Dixon, Sriram Krishnan and the 104 different folks on Andreessen Horowitz’s crypto team.
A16z’s prolific crypto allocation — round $7.6bn, greater than a fifth of the agency’s whole property underneath administration — was constructed up over a number of halcyon years during which the Fed exorcised rates of interest and monetary excesses sloshed across the system, earlier than ultimately discovering a house in enterprise capital.
However right here’s the factor: greater than half of this cash, $4.5 billion, was introduced after the crypto business began to freeze over. The coinciding bulletins of ‘a16z’s flagship crypto fund loses 40 per cent of worth!’ and ‘a16z has raised one other $4.5bn for crypto!’ created whiplash amidst a backdrop of rate of interest hikes and overdue regulatory scrutiny.
The latter issue is extra distinguished than ever, with the US’s Securities and Exchanges committee considerably upset that crypto exchanges like Coinbase, as soon as valued at $112bn, and Binance, as soon as valued at $45bn, appear to have been working as unregistered brokers.
Sadly, these pesky US regulators have created a $7bn drawback for a16z. Web3 and DeFi investments into startups in Miami, the house of US crypto, have all however dried up. The town’s bitcoin convention Bitcoin 2023 had half the number of anticipated attendees this 12 months. The “Miami Bathtubs of Champagne” Index is at an all-time low.
A16z has three clear choices, in tough order or desirability : 1) diversify out of america, 2) diversify out of crypto, or 3) return the fund to its buyers.
Assuming the fund’s companions would moderately die than forego $140mn in charges income a 12 months, let’s have a look at the agency’s solely two actual choices: opportunistic geographic growth or saying “we’re investing in AI however we’re pretending it’s crypto”.
Discovering ports in a storm
With El Salvador having formally signalled a Sport Over for crypto the day that its HODLer president, Nayib Bukele, eliminated bitcoin from his Twitter profile alongside together with his laser eyes profile image, a16z wanted to scrape the barrel.
They settled on one of many few remaining non-regulated crypto geographies within the trendy world of enterprise and finance: Singapore-upon-Thames the UK. And the timing really works fairly effectively right here. As a result of simply because the pesky SEC cracks down on crypto throughout the pond, the UK has managed to do away with its personal pesky regulatory overlords within the European Union (or, so we’re instructed) and decide (okay probably not decide) a wannabe crypto bro, Rishi Sunak, as prime minister.
Simply as Bukele modified his Twitter profile image to “laser eyes” throughout zero-interest-rate insanity, Sunak has modified the door of 10 Downing Road to, uh, this:
What’s occurring with the No10 door?
Effectively… pic.twitter.com/w9QgK8CEVk
— Rishi Sunak (@RishiSunak) June 14, 2023
Maybe the long-term ache of Brexit is definitely worth the short-term achieve of changing into the brand new international hub of crypto scams innovation?
A16z accomplice Chris Dixon is delighted with the deal reached with Stanford MBA alum Sunak:
Whereas there may be nonetheless work to be carried out, we consider that the UK is on the appropriate path to changing into a frontrunner in crypto regulation.
Thank God — the UK would possibly lastly be world-beating at one thing.
Diversify or die?
The opposite technique to generate returns on a $7bn crypto fund is, after all, to only not allocate it to crypto.
We all know that the autumn of crypto created a vacuum in VC-land, which was in a short time stuffed by throwing lots of of tens of millions of {dollars} at AI startup pre-seed rounds. Why not simply spend it there? The chance of the crypto fund’s restricted companions deeply understanding what crypto really does is fairly small. The chance of the LPs nonetheless wanting their cash to be ploughed into it’s even smaller. It’s a win-win.
Earlier this week, a16z led a $43m deal for Gensyn.ai, saying:
. . . constructing AI techniques requires ever-larger deployments of computational energy for the coaching and inference of at present’s largest and strongest fashions . . .
We’ve at all times described blockchains as a brand new type of laptop. What makes them distinctive is that builders can write code making robust commitments about how that code will behave sooner or later. This permissionless element of blockchains allows the creation of a market for consumers and sellers of compute energy — or some other type of digital useful resource like information or algorithms — to commerce with no middlemen on a worldwide scale.
Discuss killing two birds with one stone.
So what, then, will come of this $7bn struggling searching for crypto? Opening its first worldwide workplace throughout a enterprise downturn means that a16z’s London-meets-AI funding technique is a final try to dump a pile that’s 100x the dimensions of the median European VC fund.
The influence of this technique will clearly not go unnoticed, and a few European VCs are privately questioning whether or not European deal stream can soak up such a big quantity so shortly. However it might carry the tide for the broader European startup group, which is able to welcome deep pockets to switch a now-absent Tiger and SoftBank.
I believe the times of a16z asserting new crypto funds are effectively and actually over. However it might nonetheless discover a technique to put this cash to work and to carry onto these administration charges.
During which case, European startups might get foolish cash thrown at them for the primary time ever, and LPs will get… effectively, most likely not the 1,000x crypto returns they’d as soon as hoped for.
