Crypto: Liquid Venture investment strategy

The frenzy around crypto, fed by extensive media coverage and price surges, has led to a pivotal increase in capital flows into the crypto ecosystem and has led to a significant increase in the number of “crypto funds”.

A lot of these funds employ a VC style investment approach with medium to long-term holding periods. These investors aim to gain exposure to the following verticals:

Web3 Technology Stack

These are the building blocks of Web 3.0. This includes verticals such as: computation, file storage, external data, monetization, and payments. In this situation, crypto funds identify underlying technologies (Web3 building blocks), that they expect will be in high demand in the future, and then invest in the underlying currency. For example, in the case of Ethereum (believed to be the most stable and widely used blockchain), crypto funds rushed to invest in the underlying currency: Ether, resulting in a 17,000% gain (Jan 2017 – Jan 2018)[1].

Infrastructure

These are the applications/software that facilitates user interaction. An example of this is Coinbase, a digital currency exchange which raised $100M in its Series D round in August 2017. Investors included top tier VCs such as: Battery Ventures, Draper Associates, Greylock Partners, Section 32 and Spark Capital.

Decentralized applications (“dapp”)

A platform must meet the following criteria to be “decentralized”:

  • Open Source – Source code of app is available to all.
  • Decentralized – Uses a blockchain-like cryptographic technology.
  • Incentive – App has crypto-tokens/digital assets for fueling itself.
  • Algorithm/Protocol – Generates tokens and has an inbuilt consensus mechanism.

An example of investments in this space is Coefficient Ventures investment in FileCoin.

Top VC investors in the crypto space include: Digital Currency Group, Pantera, Hard Yaka, Blockchain Capital, Andreessen Horowitz, Union Square Ventures, Draper Associates and Boost VC.

[1] https://www.forbes.com/sites/cbovaird/2018/01/10/why-investors-are-flocking-to-ether/#78db22975437

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