Lessons From a16z’s New Crypto Fund

Andreessen Horowitz is a legend in the venture capital world.

The firm, usually called “a16z,” made early investments in Facebook, Lyft, Coinbase, Airbnb, Slack, GitHub, Skype and countless others. It invested very early in these companies, and as you can imagine, the rewards have been tremendous.

Andreessen Horowitz was also one of the earliest investors in the cryptocurrency space. It got in early on Coinbase, which now has a $1.6 billion valuation. It also invested in Polychain Capital, the first cryptocurrency hedge fund to manage $1 billion in assets according to a February regulatory filing.

A16z’s crypto investments have shined so far. And both of a16z’s founders are true believers in the space.

So I wasn’t surprised when the venture capital firm announced a new $300 million crypto fund this week. The new fund will invest in cryptocurrency infrastructure companies (like Coinbase), initial coin offerings (ICOs) and coins/tokens.

The fund outlined its goals and vision on a new website. It’s a fascinating read that gives us a rare look into the minds of the smartest money in crypto.

How the Smart Money Invests

My main takeaway from a16z’s announcement is that it’s very committed to crypto – and that it’s investing for the long term.

This passage, in particular, stands out.

We are long-term, patient investors. We’ve been investing in crypto assets for 5-plus years. We’ve never sold any of those investments, and don’t plan to anytime soon. We structured the a16z crypto fund to be able to hold investments for 10-plus years.

This is the best way to invest in crypto (and many other assets). In the venture capital world, it’s known as being “patient capital.” It means being willing to wait and endure the ups and downs. To hold despite volatility. And to avoid the temptation to exit early.

In order to hit a home run on any investment, you’ll probably have to weather several cycles of ups and downs. Every time you trade in and out of the market, it increases your investment risk.

If you’re confident about the long-term value of an asset, you must stay disciplined and not sell (unless you need the money badly or could use it to pay off significant debt).

Investing with a patient capital perspective is also tax-efficient. Even if you trade in and out of the market successfully, the short-term capital gains will eat up a big chunk of your profits.

Fear, Greed… and Buying Low

Here’s another snippet from the a16z announcement that caught my eye:

We have an “all weather” fund. We plan to invest consistently over time, regardless of market conditions. If there is another “crypto winter,” we’ll keep investing aggressively.

This is the mark of a dedicated, confident investment firm.

Marc Andreessen, co-founder of a16z (and internet pioneer), has been predicting the rise of crypto for years.

“We’re quite confident that when we’re sitting here in 20 years, we’ll be talking about bitcoin the way we talk about the internet today,” Andreessen said in a 2014 interview with the Washington Post. “We just need time for it to play out.”

When Andreessen gave that interview in March of 2014, the price of bitcoin was $600. By January of 2015, bitcoin’s price had dropped to around $200.

Those who lost hope and sold at that point missed out on the run from $200 to $6,000 today.

And today there are more true believers than ever. Many are experiencing their first correction, which can be rough to handle.

But I believe the rewards for those who “hodl” through this cycle will be large, as they have been in the past. You just have to learn to hold through rough times like these, and buy more if you can.

It sounds simple. But it’s harder than it seems.

I think long term to stay focused.

And when I ignore short-term noise, I see progress on almost every front.

Crypto has never had such a large and interested public audience. It’s now a global phenomenon.

It’s being funded by the best investors on the planet, at scale.

Breakthroughs are constantly occurring, and most are being shared in an open-source manner.

We’re starting to get regulatory clarity, too. The SEC has said bitcoin and Ethereum are not securities. That’s good news.

Meanwhile, the traditional financial system is weakening, as are fiat currencies. Corruption and waste are as bad as ever.

That’s it. That’s all I need to focus on to be opportunistic instead of fearful. Almost everything else is just noise.

Good investing,

Adam Sharp
Co-Founder, Early Investing