- The new fund shows a16z has gone all-in on crypto
- The appointment of former SEC honcho Bill Hinman shows regulation is a major concern
In 2018, venture capital giant Andreessen Horowitz made a big bet on crypto with a first-of-its-kind $300 million investment fund. Two years later, it doubled down by creating another $510 million crypto fund, and now—underscoring how the firm has gone all-in on crypto—Andreessen is launching "Crypto Fund III" backed by an additional $2.2 billion of investment capital.
In announcing the news on Wednesday, Andreessen Horowitz (known in tech circles as a16z) also revealed a series of high-profile appointments, including that of prominent former SEC official Bill Hinman, who is best known in the crypto world for his ruling that Ethereum is not a security.
All of this is likely to deliver a boost to the crypto industry, which has been limping through a recent downturn marked by a dramatic drop in the price of Bitcoin and other cryptocurrencies. But the news will also bring new scrutiny of Andreessen Horowitz, whose controversial tactics have ruffled feathers in Silicon Valley and the media, and which is now poised to dominate the crypto industry for the foreseeable future.
Crypto Fund III
Andreessen Horowitz, already prominent in Silicon Valley for its early bets on tech giants like Facebook, launched a stand-apart unit in 2018 dedicated to crypto or what partner Chris Dixon describes as "Web 3.0." Like other firms of its kind, a16z invests money on behalf of deep-pocketed investors and distributes the returns years down the road.
The firm's Crypto Fund III is by far the biggest fund dedicated to cryptocurrency to date. Investments from its first two crypto funds include well-known startups like Uniswap, Compound, Dapper, and Protocol Labs. The massive new fund will be allocated to projects of all stages, from new startups to established companies, and seek to validate a16z's thesis that crypto is a world-changing technology on the level of the Internet.
"We are radically optimistic about crypto’s potential to restore trust and enable new kinds of governance where communities collectively make important decisions about how networks evolve, what behaviors are permitted, and how economic benefits are distributed," said a16z partners Chris Dixon and Katie Haun in a blog post announcing the new fund.
The news comes as the broader crypto market has entered a major downturn following a bull run that peaked this spring and saw Bitcoin climb to around $62,000 and digital assets of all sorts soar to jaw-dropping values. Since then, the price of Bitcoin has slumped badly—briefly dropping below $30,000 this week–while many less established cryptocurrencies have dropped even more. This suggests a16z may be launching its new fund amidst a bear market.
The recent downturn is unlikely to give a16z jitters, however, as the firm launched its earlier two crypto funds amid a so-called "crypto winter." And in their blog post, Dixon and Haun declare, "The history of crypto shows that asset prices may fluctuate but innovation continues to increase through each cycle."
Such blog posts are part of an elaborate media operation at Andreessen Horowitz that, over the years, has displayed a knack for generating publicity for the firm and its partners. This has led some other venture capitalists to view the firm as arrogant, and for competitors to snark when a16z's returns have suffered a downturn, as they did in 2019, or trailed other VC firms.
According to veteran Silicon Valley journalist Eric Newcomer, who was first to report rumors of a16z's massive new fund in May, the firm also stands to make a pretty penny from fees on its new venture—which has also rankled competitors.
"Andreessen Horowitz’s rivals snark that the firm is chasing management fees — those lofty payouts firms receive just for taking people’s money. I hear that the Crypto Fund plans to charge a 2.5% management fee for most of the first decade of the fund. On a $2 billion fund, that could mean $50 million a year in fees alone," wrote Newcomer. (Andreessen Horowitz did not publicly rebut these claims at the time, and a spokesperson did not reply to a request for comment from Decrypt as to whether they were accurate).
The upshot is that the stakes are as high as ever for a16z, Dixon, and Haun, who have been given the keys to its crypto operations by founding partners Marc Andreessen and Ben Horowitz. If the new mega-fund fails to deliver healthy returns, crypto skeptics and a16z rivals will be quick to sneer. Conversely, if some of the new fund's bets pay off—in a way that a16z's early bet on Coinbase did—the firm will be in pole position to dominate the crypto industry for years to come.
'Heavy hitters' join a16z crypto
In their blog post, Dixon and Haun boasted of having a "powerhouse team" to support startup founders and others at the firm's portfolio companies, and disclosed the recent appointment of "heavy hitters."
The most notable of the latest recruits is Bill Hinman, a former top official at the SEC who raised eyebrows in 2019 when he announced while at the agency that certain crypto projects could become exempt from securities laws if they were "sufficiently decentralized." Some in the legal community mocked Hinman for developing new legal tests on the fly but his finding that Ethereum had met this decentralization criterion endeared him to many in crypto.
Hinman is joining a16z as an advisory partner on regulatory issues, as is Brent McIntosh, a former Under Secretary at the U.S. Treasury. Meanwhile, the firm also announced that Tomicah Tillemann, a former senior adviser to President Biden and speechwriter for Hillary Clinton, will become its new Global Head of Policy.
This decision to hire top political and agency officials suggests a16z is girding itself for a potential regulatory onslaught at a time when governments around the world are getting more aggressive vis-a-vis the crypto industry.
"As with any new computing movement, crypto has endured a variety of challenges and misconceptions," said Dixon and Haun, adding that the new additions will help "translate" crypto to the mainstream.
Meanwhile, Andreessen Horowitz also announced Rachael Horowitz will run its marketing and communications operations. Horowitz is a veteran Silicon Valley operator who has done stints at Facebook, Twitter, and Google as well as leading communications at Coinbase at a time when the company was transforming into a crypto behemoth.
Horowitz's job is going to be an interesting one in light of a16z's mercurial approach to the media. After years of charming journalists with private dinners and upscale cocktail parties, the firm has largely gone dark to outside news outlets and is instead building out its internal media unit. This approach has, predictably, proved unpopular with some in the media, and has been embraced by Coinbase CEO Brian Armstrong, who is a protege of Marc Andreessen.
Finally, a16z announced it has brought on Alex Price, a longtime crypto executive and prominent investor in DeFi, as an advisory partner. The firm also promoted Andrew Albanese, a veteran of the New York Stock Exchange, to the role of Chief Operating Officer.
These new appointments are set to have a front-row seat to the richest and most audacious bet on crypto in history.