BlockTower Putting $150M Crypto Fund to Work as Valuations Return ‘Down to Earth’

The company's new venture-capital head Thomas Klocanas talks DeFi, equity stakes and investing in a bear market.

AccessTimeIconOct 14, 2022 at 2:57 p.m. UTC
Updated Oct 14, 2022 at 3:57 p.m. UTC

Brandy covers crypto-related venture capital deals for CoinDesk.

Crypto asset manager BlockTower Capital revealed a new venture-capital arm this week and lifted the veil on a $150 million fund that opened in December and was fully subscribed in a matter of weeks. What motivated one of the original crypto-native asset-management brands to enter the VC world, and what will those investments look like amid crypto winter?

BlockTower launched the fund in stealth last winter as part of a “show-don’t-tell” ethos that’s also represented in the firm’s sparse website and corporate Twitter account. Limited partners that invested in the vehicle included insurance giant MassMutual, French-government-backed Bpifrance and the Teachers Retirement System of Texas. Early investments for the fund include layer 1 blockchain Aptos and institutional finance network Maple Finance.

The new venture-capital arm is led by general partner Thomas Klocanas, a veteran of investment firm White Star Capital.

“We wanted to have something to announce more than just that we raised money,” Klocanas told CoinDesk in an interview. “Here we are 10 months later with a fully fledged team that we’re super proud to reveal to the world, a network of venture partners that will be announcing in the coming weeks, a portfolio of a couple of projects and a vision we have now validated with our portfolio.”

Origin story

BlockTower was founded in 2017 by Ari Paul – who previously managed the portfolio of the University of Chicago – and former Goldman Sachs vice president Matthew Goetz. The Miami-based firm has historically invested across three strategies, including an active trading flagship fund offering exposure to liquid crypto assets, a market-neutral fund and a credit vehicle backing real-world assets like fintech and auto loans.

Before this new venture fund, BlockTower had a portfolio of 40-plus projects, said Klocanas. The firm’s structure, however, meant those venture-capital deals were put in so-called side pockets, a type of account hedge funds use to separate riskier or illiquid assets. That meant the deals were on the smaller side with a shorter-term focus.

For this new fund, early investors in BlockTower (the company itself) – which included large traditional VC players – suggested the firm pursue a true venture-capital strategy, rather than just those side pocket investments.

Investment focus

The new BlockTower fund was set up to be crypto generalist, tapping into employee expertise in areas ranging from consumer crypto to decentralized finance (DeFi) to infrastructure.

“In DeFi, we’re spending a lot of time at the intersection of DeFi and credit,” Klocanas said. “We’re thinking about mobile infrastructure, about privacy infrastructure. We are starting to think about the Web3 consumer social layer. We’re super-interested in the future of decentralized governance in crypto and beyond.”

The check sizes from the fund will be in the area of $500,000 to $6 million, with BlockTower preferring to lead or co-lead the rounds. The capital will be deployed over roughly three years, a deadline that’s flexible, though BlockTower has no plans to burn through the fund in less than a year like some other crypto-focused VC firms, Klocanas said.

Venture-capital firms often provide companies with operational support, which can include intangible assistance like recruiting help or technical participation such as operating nodes on a network, and BlockTower is still formalizing strategy in that area, Klocanas said.

Bear market investing

The timing last December meant the fund raised its capital during the tail end of a bull market but is deploying during a bear market.

“I think it presents a lot of opportunity from a venture perspective. I don’t say this opportunistically,” Klocanas said. “Objectively, crypto valuations and just valuations at large were a little crazy last year. Things have come back down to earth a little.”

“We just went through a monumental hype and partial adoption phase and some of that adoption will fade because it’s people who are just here for the bull market and might get flushed out and lose interest when things temper down,” he added.

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Brandy covers crypto-related venture capital deals for CoinDesk.

CoinDesk - Unknown

Brandy covers crypto-related venture capital deals for CoinDesk.