What’s Up With Crypto’s VC?

big thing. Despite the volatile crypto market, some of those vcs are still betting big on the potential of the blockchain. For the latest on this, Bloomberg reporter Hanna Milla joins me for a look at how crypto is influencing VC and vice versa. Hannah, thank you again as all it's for joining us on the show. Thank you for having me. So today we're going to talk about venture capital. I am delighted to be recording this episode literally in San Francisco on a week where there are as there always

is a lot of tech and vcs in town. This is a place as part of you know the tech scene that folks in and out of the US we have heard about that has given rise to one of the biggest sources of funding for tech startups, many kinds of startups. We are primarily tech and increasingly crypto startups. What do our listeners need to understand about venture capital and crypto. Well, there's big money coming in. That's the

first thing to understand. Venture capitalists are really excited about the space, and they've gotten their limited partners on board with this, and they're cutting really big checks to support crypto and web three startups. Unlimited partners are the people who say, yes, you can write this check, or you can't exactly or increasingly just like do a bank transfer for a very large amount of money. Yes. And when you say they're raising big, big money, like, give give

me a sense of proportion here, what are we talking about. Yeah, Well, there was a four point five billion dollar fund, a record breaking investment vehicle that came just recently from Entries in Horowitz, which is a huge player in the space. This is just a massive amount of money coming out at a time when there's a huge market downturn for crypto crypto stocks, everything pretty much everything, So it was

really fascinating to see that come up. It shows that there's still a lot of confidence that the space will overcome this. And and and Horowitz, they are obviously one of the older, people, say, more prestigious names in venture capital. They've been in crypto for a long time. This is not their first for a into investing in crypto companies, oh gosh. No. Yeah, they were an early investor in open Sea, which you know is the leading n f T marketplace at the moment. Uh. They've been backing really

some of the biggest names in the industry. Uh. And they have this very large dedicated crypto team and just launched a research arm dedicated helping their portfolio companies. And of course, one of the people who was running that crypto fund went off and started her own recently as well. Yeah, that's Katie Han, And you know, it's been really interesting to see where Han Ventures is going. They've also backed some pretty big names in the space, including Autograph n

FT platform started by Tom Brady. So what we've got is it sounds like a handful of really large players that everyone is clamoring for who come from traditional venture investing. And then we also have non traditional venture players who are native to crypto. Can you say a little bit more about that end of the market. Yeah, no, it's very interesting. There's sort of a tense divide between crypto

native BC firms and generalist firms. Crypto native firms like Paradigm, which has two point five billion dollar fund dedicated to the space, which was at the time big that was, you know, they had the biggest on until A sixteen Z came in. But yeah, no, they believe they have the specialized knowledge to really support their portfolio companies. They're entrenched in the space. They're completely dedicated the space. They also understand the philosophy driving you know, blockchain startups and

this idea of decentralization. So I've talked to investors, you know, who are at crypto native firms and they have a lot of resentment towards the Sandhill set. In Sandhill is the part not in San Francisco, actually in Palo Alto where a lot of these old school VC firms are based. Yes, yeah, I know, and it's very interesting to see, you know, how they sort of scoff at these firms that are coming in that have been established for decades but may

not have like a true conviction in the space. It's very similar to what we're seeing in other parts of the crypto market where folks are like, oh, these Wall Street dudes coming in and crashing our party. Is that resentment of function of as you say, a lack of conviction they think they're fair weather only, or is it

about the lack of technical understanding or domain exper tease. Yeah, I think the lack of technical expertise is something that the crypto native firms really resent about the generalist firms, and they think maybe they don't do their proper research when looking into projects from vests, that they're going more for flash than the actual technology behind these platforms. It's

been very interesting with crypto native firms. They have these research specific arms, you know, that can really provide technical expertise to portfolio companies. But with firms like a sixtine Z, we have seen that research on getting built out that's really chock full of some impressive technical experts who can provide support. So they're sort of rising to the challenge

posed by by these other other folks. One of the other places we're seeing crypto investments is from big crypto exchanges themselves, so coin based finance, they both have venture capitual arms, Like, how does that work? Yeah, we've seen some really interesting stuff coming out of these venture arms that are part of these huge names in crypto like finance, like coin based, like FTX. So these venture arms, you know,

they fall into that crypto native category. They have a lot of money to play with typically and they're making really some big investments in the space. So that's been exciting to see. You know, these firms pop up again. They have this knowledge, this expertise to really assess evaluate projects and provide support to their portfolio companies. We're also

or are you starting to see specialization? So, for instance, one thing I've observed with FTX is they tend to make their investments in things that obviously support the Solana ecosystem that they're closely associated with. They've been doing some interesting things in gaming. They raised I believe it was a hundred million dollar fund dedicated to cryptogaming. Are you also seeing certain parts of the markets where you're like, oh, this firm is really playing over here. Yeah, gaming is

such a hot area. You know, it's really drawing in some big investors, Like you mentioned FTX Ventures, and you know, it's it's really a hot button space. But there's also a lot of pushback against these of nft ease and blockchain in gaming from the traditional gaming companies, from traditional gaming companies, from gamers themselves. You know, they don't understand the point, like why do I need an n f T in a game I know and love? Is this going to be a super clunky, annoying game with bad

graphics exactly? You know? Is it just a finance platform wrapped up and crappy graphics? You know, that's really something that's talked about a lot, and that's something that both those investing in gaming platforms and those building them will have to overcome for it to take off. We'll be right back with more of Hannah Miller's take on the innovative ways VC is partnering with crypto start ups. A lot of the crypto companies that are backed by VC

have had, shall we say, a challenging year. There have been some massive hacks, there have been all different kinds of exploits, there's been a ton of bad press. How are vcs who may have been used to just being like yep, that seems great and not doing that research that you mentioned responding to this more challenging landscape. Yeah, their roles are changing in the space. UM, They're going to have to be prepared to bail out projects that

suffer massive security flaws. We saw that with Jump Crypto and Wormhole. It's just something that they have to ask themselves when investing in this space. How much am I willing to pay to come in and be a white knight and bail out my portfolio company. Are you seeing any reputational risk, like are their crypto companies or that are saying, hey, these vcs are associated with projects I

don't want to be associated with, or vice versa I have. Yeah, I've actually seen sort of a hybrid investing model where it's sort of traditional venture capital but it uses blockchain and the investments are actually made using blockchain. The only the white list certain that investors for a project white list an approved list of vendors. Only those investors would be able to put in money UM, and that's through

voting with crypto tokens. So you're seeing both more discernment as in people are like okay, conscious be a free for roll, but also they're using that crypto native governance structure to make these kinds of decisions. Yes, that seems unusual in VC and you know, in terms of I don't think folks are kind of used to the equivalence of shareholder democracy as it were coming to private capital. Yeah, and that's why we've seen them use vehicles like decentralized

autonomous organizations to make these decisions. And at the end of the day, they're like, all right, you have to be okay with it because this is blockchain, this is what we do. If you're not cool with it, then don't invest. Speaking of things that vcs may or may not be cool with, let's let's talk about ape coin for a second. So what is ape coin and what was the controversy as it related to governance and vcs. Yeah, so ape coin, they did a drop not too long ago.

We were able to get it coin if you held a board ap Yacht Club and f T one of the biggest, most popular and most expensive collections Athlete and there's also some spin off collections of that that you can still get coins if you if you had those, and a lot of the vcs were the ones getting these massive amounts of epe coin tokens when they dropped because they had invested in you Go Labs, which is board apcot Clubs developer, And there was a lot of

controversy about this. This was supposed to be like a really fun community where you know, people would get a huge day. And what happens with board apat clubs. You know Universe, I guess you know, there's a game coming out, there's a restaurant, There's all this different stuff happening with the project. So the fact that venture capitalists we're getting massive amounts of ep coins and a huge say and what happens with the project seemed to go against the

grain when it comes to the decentralization that underpins blockchain. Right, So we've transformed from you know, if you have money, you make money into like if you have crypto, you make crypto. In this particular context, how have the vcs, or have the vcs themselves responded to this avenue of criticism. Yeah, no, I mean we've in them say like, you know, we understand the philosophy here, We're not here to take over

these projects. A sixteen Z actually delicates out portions of its tokens for different projects to things like student groups and schools. So when you say delegates. That means they say, hey, we have this amount of voting power, you take it and do something with it. Exactly. They're not transferring over like ownership the tokens, but that voting power. They're trying to make it more decentralized than what they say. But

for some people in the space that's not enough. They see these investors coming in referring it to as Web three, and that they're the one is going to be taking control of what is supposed to be space managed by users. So I want to end on that note about the tension between what folks call crypto and what folks call

web three. And when we talk about Web three, what we're often talking about is something that Chris Dixon, who is a venture capitalist who is associated with Andres and Horrowitz or A sixteen Z, has identified as a way for creatives to monetize their talent, their energies, their efforts on the blockchain. Then there are a bunch of people who are like, so, we don't understand what that has to do with crypto specifically, none of this even necessarily

requires a blockchain. I mean, it got to the point where they have been these like exceptionally petty billionaire feuds on Twitter with people like Jack Dorsey formally CEO of Twitter and now running block, you know, essentially fighting with these different vcs about this ideological schism in crypto. Why does any of this Matto, Yeah, it does matter. I mean Web three is a catch all term that we hear so often, and people use different definitions for it

and can make the space more cloudy and confusing. But this is something that's coming up more and more. I see projects themselves using the term web three. It is something that we need to keep tabs on and basically it's looking at you know, who's controlling the Internet, who's benefiting from it In the future. Web three and my mind refers to a decentralized version of the Web that's free from you know, control of big tech giants, you know,

like we've seen currently. So it'll be interesting thing to see what happens. What I hear is it's very very early stages. You know, we're only like the way there for potential. And at the same time, there could be just this idea that it completely falls flat. Indeed, and the idea of Web three being a decentralized version of the Internet. The centralized version of the Internet was funded by the same vcs we are now trying to sell

you on the decentralized version of the Internet. So wherever there is a tech idea, there's somebody making money on it. All right, Well, that was a very helpful episode and I'm glad you were able to join us today. Thank you for having me. You can find more of Hannah's reporting on the Bloomberg terminal, on Bloomberg dot com and

on Twitter. She's at h G. Miller nine. On the next episode of Bloomberg Crypto, we're going to talk about crypto correlation, what it is, how it works, and what that means when crypto prices and prices in the stock market, a completely unrelated asset class seemed to be moving in lock step. For this, you'll hear from Bloomberg Report to Volta Handrick, who will join me to break this down. I'm Stacy Marie Ishmael, and this is Bloomberg Crypto, a

daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the i Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Email your questions, comments or suggestions for the show to Crypto at Bloomberg dot net, and you'll find us on Twitter at Crypto. The supervising producer of this episode is Vicky ver Galina. Associate producer is Thy Butler. Desta wonder At is our engineer. Original music by Leo Sidran. Bloomberg's head of Podcasts is Francesca Levi