Crypto venture capital firm Electric Capital has entered the big leagues.
On Tuesday, the Bay Area investment firm announced a combined $1 billion raise for the creation of two new funds: a $400 million venture fund and a $600 million token fund.
It’s a step-up from the firm’s last fund, a $110 million vehicle announced in August 2020, and puts Electric in the conversation as one of crypto’s venture kingmakers – albeit with a different approach. Both Andreessen Horowitz (a16z) and Paradigm have all announced funds in the billions of dollars in recent months.
However, co-founders Curtis Spencer and Avichal Garg said in an interview that while the types of investments the funds will consider will be broad, they will specialize in projects with a strong community focus and fair launch token allocation.
“It used to be with token allocations it was very insider-heavy, and now we’re seeing the inverse of that – 60%-65% of token allocated to the community, which is how it should be,” said Garg. “People are playing with these token-economic incentives, where if you’re willing to do what’s right for the network – if you’re willing to be locked up for four years or something – you get disproportionate rewards. That presents an opportunity for long-term investors.”
Light vesting schedules and heavy venture capital allocations have long been a sticking point for retail investors, who argue that these bootstrapping strategies disadvantage average market participants – and that these ownership models are antithetical to blockchain’s open, permissionless ethos.
In Electric’s view, projects with more community ownership are also starting to look like superior investments.
“If you look at a lot of the emerging, healthy ecosystems, they’re not as VC-heavy,” said Spencer, pointing to Yearn Finance and Olympus as examples. “The fastest-growth ecosystems we see in the last 10-12 months, they’re community-heavy.”
Electric strives to own less than 10% of a project’s token supply at most, and tend to own “1%-5%” of the networks they invest in, according to Spencer.
Garg also noted that Electric frequently stakes and locks its assets, such as with its FRAX position, and they acquired a large portion of that investment on the open market.
In some ways, heavy community allocations and having to buy tokens on the market makes investing more difficult, but Garg believes that long-term investing in a nascent, high-growth industry still presents enormous upside.
“It’s going to come down to: How good of a picker are you? It’s still a venture, but the way you acquire the assets is going to be a little bit different. We think that’s the way the world’s going to work, and we can play in that market too,” he said.
Long-term thinking is also baked into the structure of the funds. Garg noted that the liquidity providers to the new ventures will be locked for 10-12 years. He also said that “roughly 90%” of the limited partners are nonprofits, foundations and university endowments – all parties known for long-term investments.
“Everybody needs to be long-term-minded here. This is a venture asset class – it’s going to take a long time to play out,” he said.
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