It’s not just crypto retail investors having a miserable year. According to the Wall Street Journal, the industry’s 800-pound gorilla, Andreessen Horowitz (a16z), is also getting pasted as the venture capital firm’s flagship crypto fund shed 40% of its value in the first half of the year. The report suggests some investors are nervous that the firm—which made its name with early bets on the likes of Facebook—is too deep into crypto.
Needless to say, a16z’s current plight is not eliciting a lot of sympathy. The firm is not exactly known for its humility, and its self-promotion and penchant for bombast have chafed some in Silicon Valley. Others are simply aggrieved the firm’s giant size lets it throw its weight around when it comes to getting access to hot deals.
While a little schadenfreude is always fun, it’s unlikely a16z is in any real trouble. As the WSJ report acknowledges, the firm’s crypto fund previously posted returns that were the best in venture capital history, while a16z has returned billions in profits to its investors. And while 2022 has been a ghastly year for a16z’s balance sheet, few will remember this when the next crypto boom cycle returns and—as is more likely than not—the firm again starts delivering 5x to 10x returns.
But that doesn’t mean all is well in the world of crypto venture capital. I recently spoke with Sarah Tavel, a general partner at Benchmark who is in charge of the firm’s crypto bets and who is widely respected in Silicon Valley. She said crypto investing has become defined by a handful of giants—notably a16z, Paradigm, and Haun Ventures—chasing too few quality startups. This has led to overstuffed investment rounds and unrealistic valuations.
Tavel also told me the crypto industry is addicted to speculation and empty-calorie investing—focusing on manias like yield farming and initial coin offerings. She says this fixation on speculation has come at the expense of consumers as VC firms focus on token gimmicks rather than building products people want to use. It has also led to mistrust of the crypto environment as a whole.
It will be interesting to see if the current downturn produces a cultural change in the crypto VC world, or if the emergence of newer firms led by younger people—Variant comes to mind—will lead VCs to focus more on consumer products. It’s too soon to say. But for now, few would complain if the VCs spent less time on thought leadership and more on building something useful.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
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MEME O’ THE MOMENT
One of the many fun illustrations from Matt Levine's crypto opus:
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