Crypto Global
By Aidan Ryan Welcome back,
At this point, it feels like a new venture fund dedicated to crypto is launching every week. But not all investors are completely on board yet.
Larry Cheng, a founding partner of 12-year-old Volition Capital and an early investor in pet company Chewy, told me he started out as a real skeptic about the crypto and Web3 sectors. But after spending the past year learning more, Cheng is coming around.
Boston-based Volition, which was created by U.S. partners of the former venture arm of Fidelity Investments, focuses on growth equity investments and recently led the Series A round for Doing Things Media, which is hoping to venture into NFTs and crypto. Cheng said he is interested in crypto startups that aim to solve problems the sector faces, such as using Layer 2 technologies, or secondary protocols built on top of existing blockchains, to help reduce so-called "gas fees," which help pay for the cost of minting NFTs.
Cheng, who previously worked at Battery Ventures and Bessemer Venture Partners, has also been on the board of GameStop since June of last year. He told me he joined the board after activist investor Ryan Cohen, the cofounder and former CEO of Chewy, restructured the board and invited Cheng to join.
"Honestly, I was just pleased to support Ryan in this effort and I thought it might be fun," Cheng said.
Here's a portion of our conversation, which has been edited for length and clarity.
The Information: Are you planning to start investing in crypto or blockchain companies?
Larry Cheng: We've made a concerted effort to learn over the last year about everything crypto. And in part it's because the dynamics are relevant to some of our portfolio companies. But it's [also] really trying to understand the foundational shift in how the entire internet works and how you and I and others engage with the internet.
I certainly went in skeptical. I started like many as the guy who would say, "Oh, wait, an NFT is like a glorified JPEG. Why is it trading for a million dollars? That doesn't make any sense." And then as you start to understand and unpack NFTs in the broader landscape, you can understand why they're very valuable.
I like to think of the image of an NFT, in some sense, as the box for the product. You kind of have to open the box to see what's inside. And what's inside can be really valuable. It's a smart contract that gives you certain governance rights and community access and those types of things. So I have arrived at the belief that this is the beginning of a fundamental shift in how the internet works.
There are all sorts of problems. There are security problems, there are user interface problems, there are super high costs, gas fees and so on. It's incredibly complicated and there's a lot of fraud. It's got all of these problems, Yet, people are flowing into it with their capital and with their time and their energy. And I think that's actually the validation.
What are you thinking of next for the firm and potential investments in crypto?
We tend to think about the world, in investment practices, as solving problems. And so what are the problems in crypto today? Exorbitantly high gas fees. So we're looking at all of the mechanisms — which can be anything from mining capacity to Layer 2 technologies — to sort through gas fees and make that simpler.
It's really hard to mint an NFT and know what you're doing. Are there technology platforms to aid with that, or can technology-enabled services companies aid brands who want to launch NFTs? How to manage a DAO? It's decentralized. There's all these governance dynamics. What are the tools and ecosystems to enable that to happen?
Should we expect to see investments from the firm in crypto and Web3 sometime soon?
I think it's entirely plausible. We're certainly learning about it. I don't know that we would actually buy into a cryptocurrency — that's outside of our mandate. And I'm not sure that we would be directly buying into NFTs and so forth through our fund. But enabling a technology platform to help solve some of the core issues — if we saw the right scenario emerge — we would certainly look at that part.
Would you ever consider changing the structure to hold tokens?
I haven't talked to my partners about that. So it would probably be too speculative for me to say. To be honest, when I saw firms adjusting their mandate to invest directly in tokens, I thought that just seems like they're being cowboys. You're so far away from analyzing the fundamentals of a business.
That's what I first thought. Now that I've spent time on it, I understand why firms do it, because that is the way you invest in certain crypto businesses. It's not through the traditional model of giving them working capital, showing up on their cap table and writing up a Series A investment set of docs. For certain crypto entities, the only way to invest in them is through their token. And so I appreciate why other firms have gotten that sort of OK through their limited partners.
You recently led the Series A round for Doing Things Media, whose founder told us that they hope to use the funding to expand into crypto and NFTs. Do you think NFTs will be an inevitable feature of any consumer social company?
I think the foundation of a great NFT program, let's call it, is community. You either have to have a very engaged community or you have to have the capacity to build one. If you just drop an NFT into the ether, no one cares.
Doing Things Media has a tremendous community. They have 65 million followers, really engaged followers, across different meme accounts and other accounts. And we can use NFT platforms to really engage with our community and give them a greater sense of ownership, rather than just liking our social posts. We are looking at that quite seriously. But we would do it with the purpose of engaging our community. Not with sort of a purpose of monetizing. That's the philosophical difference.
GameStop is an example of a consumer and retail company trying to get into content and NFTs. What do you make of that shift?
What makes for a great DAO or a great NFT is community. And one thing that may not be obvious to people on the outside is that GameStop has a tremendous community. Obviously, we are in this turnaround story of GameStop, and all things are on the table, but as it relates to Web3, and Web3 initiatives in particular, it's just notable that we have a tremendous community supporting the company.
Whoops! Bain Capital Ventures partner Stefan Cohen apologized yesterday for the lack of diversity in his new crypto fund, after his tweet announcing the all-male team went viral. The tweet spawned memes — such as this one, which dubbed the team "OnlyMans" in a spoof on the startup OnlyFans. It also drew negative reactions, with commentators pointing out the irony of advertising a lack of female partners on International Women's Day.
Cohen tweeted yesterday: "The mess up we had today is one of many, many reasons why it's critical to have a diverse team to provide much needed perspective. We are sorry."
Bain's highly criticized announcement underscores the lack of diversity among venture capital firms, and among the male-dominated crypto industry. To see which firms have made the biggest strides in diversity, check out The Information's VC Diversity Index.
"The executive order will inaugurate a serious, sustained discussion about how to build the policy architecture of a better internet. This is a debate Americans deserve."
— Tomicah Tillemann, chief policy officer for Katie Haun's new venture capital firm, about President Biden's executive order on cryptocurrencies. The order outlines seven initiatives, including tasking the Treasury Department and other agencies to develop policies to protect crypto consumers, businesses and investors. It also calls on U.S. agencies to mitigate the national security risks of digital assets and to explore a U.S. central bank digital currency.
- Milo, a fintech company that facilitates mortgage payments with crypto, raised a $17 million Series A round led by venture firm M13. Other participants included QED Investors and MetaProp.
- Vice News announced a new weekly series that will cover the cryptocurrency industry. "Cryptoland" will air on YouTube beginning Thursday, March 10.
- Blockdaemon, which helps manage the hardware and software that enables transactions on a blockchain, acquired Gem, which has developed an API for the crypto community. Funding details were not disclosed.
- Cega, which makes decentralized finance derivatives, raised a $4.3 million seed round at a $60 million valuation. The round was led by Dragonfly Capital Partners. Pantera Capital, Coinbase Ventures and Alameda Research also participated.
- BearTax, a startup that helps individuals calculate and file their crypto taxes, raised a $3.2 million seed round led by Ascend VC. Other investors included BAM Ventures, Defy.vc and Draper Startup House.
- Behance, an Adobe-owned platform that helps creators display a portfolio of their work, announced that users can showcase NFTs minted on both Polygon and Solana blockchains on their profiles.
Thank you for reading the Crypto Global newsletter. I'd love your feedback, ideas and tips: aidan@theinformation.com.
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Aidan Ryan is a reporter for The Information, covering financial markets and digital media. He is based in New York and can be found on Twitter @aidanfitzryan.
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