“We didn’t set out to create a crypto fund,” says Doug Atkin, managing partner of venture capital firm Communitas Capital. “We’ve just moved that way organically.”
The investment theme for former Instinet CEO Atkin and his two Communitas co-founders – Tom Glocer, former CEO of Reuters, and Duncan Niederauer, former CEO of the New York Stock Exchange – is building market infrastructure. In other words, providing the picks and shovels that, bit by bit, shift the paradigm.
Following this theme has led these three on a journey that has included early-stage backing of soon-to-list cryptocurrency exchange Coinbase to recent investments in hot tickets like zero-knowledge proofs company StarkWare and back-end provider Alchemy.
“I’d call our thesis ‘pattern recognition,’” said Atkin, the driving force behind Instinet’s dominance in electronic trading in the late 1990s that led to the firm’s $464 million initial public offering. He also ran Majestic Research, an early pioneer in using big data to provide key insights to the world’s largest asset managers.
Similar patterns that existed in the transformation of equities markets are repeating for cryptocurrency. On the other hand, because crypto began with retail investors (rather than evolving from institutional to retail like traditional markets), this has led to fragmentation and many trading venues. What’s at stake right now for crypto are things like getting a bitcoin exchange-traded fund (EFT) over the line in the U.S.
“The decentralization of markets is good”, said Atkin, “but you need software in the middle to bring all these exchanges and marketplaces together.”
It’s really about what crypto needs to become a true asset class, and that’s infrastructure, said Glocer.
“That means things like real end-of-day data, sound asset management strategies, ways to keep things safe and in custody. So all the things that you needed in the equities markets,” Glocer said.
Founded three years ago, Communitas Capital was the formalization of what Atkin, Glocer and Niederauer had been doing informally together for years. The hat was passed around, $20 million was raised and now the firm has made 17 investments. Communitas is now about to go out and raise its second fund.
It’s very natural in Silicon Valley history to only talk about how brilliant you are with the good ones. Back up the truck, and you’ll see all the other ones that I thought were really smart and have blown up.
The firm’s more recent investments, following once again the need-for-infrastructure thesis, are right at the intersection of decentralized finance (DeFi) and the currently exploding non-fungible token (NFT) craze.
“Alchemy is kind of like DevOps for DeFi and NFT developers,” said Glocer. “The guys really impressed me. It was a bit like when I met up with the Coinbase team. The Alchemy guys were in their 20s and seemed to have half of Stanford investing.”
The Coinbase moment
Prior to the launch of Communitas, when Glocer was starting out as an angel investor, he was lucky enough to join Coinbase’s 2015 Series C.
“I was introduced to the Coinbase founders, who were thinking early-on about issues I care about such as market structure and price transparency. I was so impressed I asked if they would make an allocation available for me. And that’s how Coinbase happened,” Glocer said.
Thanks in no small part to the current crypto bull charge, shares in Coinbase are expected to list at around $350 apiece, catapulting the exchange into the $100 billion ranks of big-ticket IPOs like Airbnb and Uber.
Glocer, who also joined early rounds for LendingClub and TransferWise, remains humble about his fortuitously timed investments, however.
“I think it’s very natural in Silicon Valley history to only talk about how brilliant you are with the good ones,” said Glocer. “Back up the truck, and you’ll see all the other ones that I thought were really smart and have blown up.”