Pantera Capital, a cryptocurrency investment firm known for its blockbuster bitcoin returns, has been on the upside when investing in startups, though the returns have been falling below or closer to other types of equity investors.

The venture funds Pantera Capital raised in August 2013 and August 2014 have returned 46.5% and 15.9% from their inception to September 2019, respectively, according to firm data obtained by CoinDesk. The returns underperform index funds most retail investors can buy into and outperform venture funds limited to smaller pools of accredited investors.

Up to September 2019, the S&P 500 index, for example, has returned, adjusted for inflation, 62.6% over the first Pantera venture fund and 40.8% over the second Pantera venture fund. United States funds included in the 2019 Cambridge Associates Venture Capital Index have returned on average 12.08% on a five-year timescale and 14.55% on a 10-year time scale.

Why the drop?

Paul Veradittakit, a venture partner at Pantera Capital, attributed the dramatic gap in performance to the different focus and size of the funds. The closely aged funds’ returns slid as the second fund ramped up investments in 36 companies and counting, in diverse companies building mostly supplemental cryptocurrency products — a more than fourfold rise from the first fund’s eight companies dedicated to cryptocurrency services catering to the bare essentials. 

While the first Pantera venture fund has invested in digital asset developers like Ripple Labs and basic exchanges and payment processors like Bitstamp, Xapo, Circle and Ripio (formerly known as BitPagos), the second venture fund has invested in exchanges with peripheral financial instruments like cryptocurrency futures platform ErisX, scattered cryptocurrency platforms that include Shapeshift, Abra, Brave, Civic, Starkware, BitOasis and BitPesa, and even another cryptocurrency fund manager, Polychain Capital.

Read more: Pantera Crypto Hedge Funds Are Losing Double Digits, Bitcoin Fund Is Up 10,000% to Date

Information was not provided on Pantera Capital’s third venture fund, which has raised $164.7 million as of August, just slightly under a $175 million ceiling sought since 2018. But if strategy and volume is any indication, the third Pantera venture fund has mirrored the approach of the second fund, putting more money into ErisX, Starkware and at least 16 in-the-weeds companies. Among these newer startups are The Block, a cryptocurrency research site; and Bakkt, a New York Stock Exchange corporation-connected bitcoin futures exchange.

In all, Pantera Capital’s assets were valued at over $448 million in financial filings this year, covering $249.3 million in the venture funds. The venture funds take at least $50,000 and $100,000 sums from investors and spend about $1 million to $3 million on 10% to 20% equity stakes in seed-stage investments. For Series A venture investments, Pantera Capital commits somewhere from $3 million to $8 million to 3% to 15% stakes in companies.

Hits and misses

Exits – mergers, acquisitions and listings on public stock exchanges – are how venture capital funds realize returns, positive or negative, on their investments, depending on company financials and investment timing. The seven-year-old cryptocurrency investment firm has had 14 exits make $66 million on $16 million of capital invested in its venture companies, according to the firm data dated to this month a year ago. 

While not counted in realized returns, companies that do not exit still contribute to a venture fund’s value. All companies considered by last September, Pantera Capital grew the value of capital in the first venture fund from $12 million to $92 million, in the second venture fund from $26 million to $41 million.

Read more: Pantera Crypto Funds Report 100% Returns Amid DeFi Craze

In the first fund, the venture data says Pantera Capital in 2018 took away $50.5 million from a $9.2 million investment and 6% stake in Bitstamp when 80% of the bitcoin exchange sold to Belgian investment holding company NXMH. Pantera Capital also stands to make $22.3 million from the remaining 20% Bitstamp equity should it be bought, making it one of the fund’s more lucrative investments.

Less remarkable than the Bitstamp exit, the second Pantera venture fund drew in one of its notable exits in Korbit – $6 million from a $603,205 investment –  when the Korean digital currency exchange was acquired in 2017 by Korean gaming developer NXC Corp.

Unlike the second fund, the first Pantera venture fund has not had a company end in a bankruptcy or a closure that did not involve a buy-out. At least two cryptocurrency apps backed by the second fund have shut down, bringing its value down along with them: Basis, a $133 million-funded coin that planned to back itself with fiat currency, and TruStory, a crowd-sourced crypto-offering fact-checking site that raised $3.3 million. 

Exits with unknown returns

Five other acquisitions have also contributed to Pantera’s venture returns, but the data does not specify how much money they made, if any. Acquired in the first fund was promotional site Earn.com. In the second fund, there were security token issuer Harbor, trading platform Paradex and virtual currency portfolio tracker Blockfolio. The third fund invested in Blockfolio again and the digital currency brokerage Tagomi.

What is known is that two of the acquisitions, Harbor and Earn.com, sold for around or below the respective $38 million and $121 million they raised, suggesting some investors may have lost money or written them off. Many investors backed Earn.com when it was a bitcoin mining chip producer, 21 Inc., a business model and name that was subsequently scrapped and rebranded. Virtual currency exchange Coinbase in 2018 acquired Earn.com for about $100 million and Harbor sold for around $38 million to cryptocurrency custodian BitGo in 2019.

Read more: Coinbase In Talks to Buy Bitcoin Startup Earn.com

On the flip side, Blockfolio sold at significant premiums for some investors from the $17 million it raised and Paradex’s acquisition was profitable for most, if not all, investors, according to investor data from other sources seen by CoinDesk. Coinbase bought Paradex in 2018 for more than its seed-only funding, and it added Tagomi for about $150 million in May. Cryptocurrency derivatives trading market FTX Exchange purchased Blockfolio for about $150 million in September.

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