a16z: Why we launched a $4.5 billion Web3 fund in a bear market

a16z crypto

2022-05-26 13:00

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a16z will work closely with its investees to ensure they have enough capital to weather the storm.

Original title: "a16z: Why we launched a $4.5 billion Web3 fund in a bear market"

Original author: Lucas Matney, Techcrunch

Original translation: Moni, Odaily Planet Daily

In the past few weeks, the cryptocurrency market has experienced huge shocks, with the collapse of UST/LUNA, the bleak prospects of DeFi, and the plunge of BTC, which seem to make it difficult to see the prospects of this emerging industry. However, for venture capitalists who are optimistic about the future of Web3, their pace has not stopped.

On May 25, Andreessen Horowitz (a16z) announced that it had raised $4.5 billion for its fourth crypto fund "Crypto Fund IV". The agency plans to allocate $1.5 billion for seed investment in Web3 and $3 billion for more traditional venture capital investments. The fund is the largest individual crypto fund raised in venture capital to date, bringing the total size of crypto funds managed by a16z to more than $7.6 billion.

So why did a16z set up a Web3 investment "giant" during the bear market? There may be two main reasons -

1. a16z's market position is challenged

About a year ago, a16z announced the launch of Crypto Fund III, which was about $2.2 billion. In terms of size, the new fund launched this time is twice as large as the previous crypto fund, which shows that a16z limited partners are increasingly interested in expanding their investment exposure to crypto startups.

But in fact, the crypto market has changed dramatically over the past year, and a16z has also experienced many unexpected challenges. Especially in recent months, crypto-native institutions such as Paradigm and Electric Capital have further emerged, raising large amounts of funds to challenge a16z's market dominance.

Not only that, a16z also has to endure the dilemma of staff leaving. In January this year, a16z partner Katie Haun announced her withdrawal and took away a group of colleagues to form Haun Ventures, which successfully raised $1.5 billion in funds, $500 million for early-stage investment (direct investment in equity and tokens), and $1 billion for "accelerator" funds.

It is reported that the $4.5 billion Crypto Fund IV will be led by a16z general partner Chris Dixon. A few months ago, Chris Dixon had a heated debate with Twitter founder Jack Dorsey and others on social media about Web3 issues, defending the Web3 industry from critics, and thus greatly improved his public image.

Chris Dixon is very optimistic about the development of Web3. He once said that ownership and control in Web 3 are decentralized, and users and builders can "own" Internet services by owning NFTs and FTs. NFT gives users property rights, that is, the ability to "own" part of the Internet. Web 3 provides a new way that combines the advantages of previous eras. Now is the early stage of this movement and a good time to participate.

2. Help crypto startups get enough capital to cope with the storm in the bear market

In recent weeks, the collapse of Terra Ecosystem and its stablecoin UST has had a huge impact on the entire crypto market, and many investors and entrepreneurs have become more skeptical of this emerging industry. As UST evaporated tens of billions of dollars in market value almost overnight, many people called on federal lawmakers to speed up the formulation of legislation to control the crypto industry.

On the other hand, the global cryptocurrency market value has fallen from a high of nearly $3 trillion to $1.3 trillion. Many people are puzzled by a16z's launch of a huge Web3 fund in this market downturn. After all, market cooling usually scares away traditional companies from continuing to bet on cryptocurrencies. However, Arianna Simpson, partner at a16z Crypto, explained: "Other investment companies are likely to withdraw, but we will not. As we can see from the size of the new a16z fund of $4.5 billion, we are excited about this industry and firmly believe that there will be good development in the future." In fact, as global stock markets have also suffered heavy losses recently (Robinhood and Coinbase have both fallen by more than 75% since their debut), many crypto investors believe that the industry outlook is not so optimistic. Observers predict that the era of global financial turmoil is coming, and not only the crypto industry, but other financial fields will also encounter problems. "Interestingly", when a16z launched its last blockchain fund, the crypto market was also on the verge of collapse, but when a16z entered the market, it quickly recovered and even pushed the prices of Bitcoin and Ethereum to record highs. Frankly speaking, during the market downturn, many new entrepreneurs will feel uncertain about the future and worry about not having enough funds available during the "crypto winter". In this regard, a16z obviously has a very big advantage, because this "old venture capital" has a lot of capital, which can help its portfolio continue to expand its business.

As Arianna Simpson said:

"We can't predict the future state of the crypto market, but a16z will work closely with our portfolio companies to ensure they have enough capital to weather the storm during a bear market."