Was VC Andreessen Really Wrong to Go ‘All In’ as Crypto Winter Hit?

Venture capital (VC) firm Andreessen Horowitz got into blockchain and cryptocurrency early, making large investments in a wide range of fields, just as it did while building itself into a giant during the internet boom of the late 1990s and early 2000s.

But as the crypto winter’s temperature keeps dropping, the firm’s Crypto Funds I-IV, which have raised a total of $7.6 billion, have come down with a bad cold. Its flagship Crypto Venture Fund I was down 40% in the first half of the year The Wall Street Journal (WSJ) reported Wednesday (Oct. 26).

And it’s almost certainly down more since then, as the cryptocurrency market capitalization dropped more than one quarter, from $1.3 trillion to $1 trillion, in that time. That’s from an all-time high of $3 trillion at the market’s peak in November.

With the firm having launched its fourth crypto fund at the end of May, raising a staggering $4.5 billion, WSJ argued that “Andreessen Horowitz went all in on crypto at the worst possible time.”

It’s not a hard argument to make. One of its best investments, Coinbase, has lost 80% of its value this year, WSJ pointed out prominently.

Chris Dixon, a16z’s lead crypto partner and a strong advocate of blockchain and Web3, said more or less what all investors and executives say when their value tanks: “What I look at is not prices. I look at the entrepreneur and developer activity,” he told WSJ, adding: “We have a very long-term horizon.”

A Different Perspective

But even looking at prices, it’s not hard to question WSJ’s core contention, that Dixon and Andreessen bet big at the exact wrong time with Crypto Fund IV.

Take Coinbase. There’s no denying that the Nasdaq-listed cryptocurrency exchange has tanked hard, with its share price falling from nearly $369 in November to its current $73.

But on June 1, the beginning of Q3, COIN was at $68, and has been basically flat since. Yet shortly after Coinbase went public last April, a16z returned $4 billion worth of shares to its investors.

And crypto’s total market cap may be one-third of what it was in November, but it hasn’t really dropped that much since June. That’s not to say that the crypto winter won’t get worse, but if it doesn’t — and bitcoin’s ability to maintain the $18,000 to $22,000 price it has held since June will play a big part in this — then a16z will have launched its biggest crypto fund at precisely the right time.

It’s also worth noting that despite its 2022 losses, a16z’s flagship Fund I was up 10.6x at the beginning of the year, WSJ noted. It launched in 2018 with $350 million and was, on paper, Andreessen’s best performing fund.

However, Coinbase wasn’t its only big hit. The VC firm has big investments in the top non-fungible token (NFT) marketplace, OpenSea, which has seen volume and prices collapse, and the Solana blockchain, an Ethereum competitor whose recent spate of operational problems and hacks have hurt its token price.

A Tangled Web3

While a16z has taken a bigger hit than other VCs thanks to its penchant for not only investing in crypto and blockchain companies but buying large chunks of the tokens that are — according to the Securities and Exchange Commission (SEC) at least — basically the equivalent of crypto project’s shares (something the industry by and large denies), the real test of the wisdom of its decision to go “all in” on crypto at mid-year will be Web3.

Dixon is a very strong believer in the somewhat amorphous concept, which holds that a third, decentralized, open-source and privacy-centric version of the internet will be built on blockchain technology. (The first two are AOL and Yahoo’s “walled gardens” and the current World Wide Web.)

It will let people maintain control of their private information, only parceling out what companies ranging from social media platforms to health insurers need. It will break big tech’s stranglehold on Web2. And, it is the building block of the metaverse, which will — according to Meta CEO Mark Zuckerberg and other boosters — be the way people socialize, entertain and do business in a decade. Or so the pitch goes.

The idea definitely has marketing departments in every segment of the economy stampeding to get onboard Web3 as publicly as possible, and more than a few VCs have joined a16z in betting on Web3, announcing nine-figure funds this year.

However, WSJ noted that Dixon has been far more cautious despite the big pile of money, announcing just nine startup investments in the third quarter, compared to its high of 26 in Q4 2021 and the height of the crypto bull market.

But if Web3 takes off, Andreessen Horowitz and Dixon will have gone all in at just the right moment: when the market is at its bottom.

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