It’s crypto winter, and Andreessen Horowitz is shivering. Its main crypto fund is down 40% this year.
From a new report in The Wall Street Journal:
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As cryptocurrency prices soared last year, no investor bet more on the sector than Andreessen Horowitz.
The timing wasn’t good.
Andreessen’s flagship crypto fund shed around 40% of its value in the first half of this year, according to people familiar with the matter. That decline is much larger than the 10% to 20% drops recorded by other venture funds, which have largely avoided the risky practice of purchasing volatile cryptocurrencies, according to fund investors.
Many of the firm’s largest investments have been crushed. Coinbase stock is down nearly 80% since its IPO. Solana has dropped 82%.
NFT marketplace OpenSea may be the best investment Andreessen’s new crypto funds have made so far. Its valuation soared over 100-fold in ten months to $13 billion.
But now, OpenSea trading volumes are down 99% from their peak. The platform is a ghost town, and one of Andreessen’s best investments may be a total loss.
Andreessen likely scaled its crypto funds too quickly. It went from a $515 million fund in 2020 to a $4.5 billion fund this year, the largest ever.
The benchmark for a decent return is a 3x fund. Can Andreessen make $13.5 billion in crypto?
If the firm gets a 10% position in a startup, that requires a $135 billion outcome. There isn’t a crypto company in the world worth anything close to that.
Andreessen isn’t just buying shares in crypto startups. It’s also buying their tokens, a rare and extremely risky move.
These tokens confer no ownership in a company. Their prices are very volatile.
Andreessen’s one saving grace is that it distributed Coinbase shares shortly after IPO, locking in billions in gains. That should preserve good returns in the early crypto funds.
But the picture for the new funds is bleak. Andreessen has made fewer investments since the crypto crash, and no one knows when prices will bottom.
I’ve been deploying capital faster in this weak market. Andreessen may be missing great opportunities by pulling back.
Perhaps its limited partners (LP’s), the investors in the funds, are telling the firm to stand pat.
I think Andreessen is over-committed to crypto. A $4.5 billion fund is too big for this nascent industry.
Deploying sums that large will require real products with real uses beyond speculation. Any day now…
What do you think Andreessen should do? Leave a comment at the bottom and let me know!
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