I wrote 3 blog posts in 2021. The one detailing where VCs are investing in crypto/web3 continues to get read and shared and is the reason why I'm excited to write about web3 on a weekly basis.

I'll use the general format of my initial Medium post, with a few added nuances:

1. Track more top tier funds, prolific angels, launchpads

2. Add alternative ways to track activity (Twitter, web3 communities)

3. Publish weekly, get specific, and use this information to make broader conclusions

Original Medium post below.

"Where The Top VC Funds Are Investing In Crypto/Web3"

I dug through the portfolios of 5 venture funds investing in crypto/blockchain: a16z, Coinbase Ventures, Pantera Capital, Paradigm Capital, & Sequoia Capital.

Broken out by section below, the goal was to understand:

1. What categories are the top funds investing in? (5 min read)
2. What is the most interesting place to invest? (1 min read)

1) Top Investment Categories by Fund

Below is a breakdown of each fund’s investments that they’ve published publicly. For each fund, I highlight the two most popular categories by investment type then pick one portfolio company that was particularly interesting.

#1 Pantera Capital

1st = Exchanges (~20% of their portfolio)

2nd = Blockchain infrastructure (12%)

Interesting portfolio company:

Ampleforth

• Elevator: AMPL is a cryptocurrency like Bitcoin, but with a twist: the amount of coins you own changes daily, but the total value of your holdings stay the same.
• Key insight: You can never be diluted by inflation, meaning your percent ownership of the network remains fixed.
• Key solution: Cryptocurrencies mostly map to Bitcoin’s price pattern, which creates a dangerous correlation across the crypto market. AMPL diversifies that risk by increasing or decreasing the supply of coins to hold the price and overall value stable.
• Example: Borrowing and lending in crypto is challenging because the underlying collateral is made up of volatile stablecoins like USDC or Dai. The crypto you borrowed could easily drop 50% in value, forcing you to continually pledge more crypto to your initial collateral. AMPL constantly changes the supply of their tokens to manage inflation and hold the overall value of the network constant. As a borrower or lender, this ensures there won’t be any price shocks in the underlying collateral.

#2 Coinbase Ventures

1st = Data/privacy/security infrastructure (~19%)

2nd = Exchanges (12%)

Interesting portfolio company:

Goldfinch

• Elevator: allows anyone to be a lender, not just banks.
• Key insight: it’s expensive to be a bank today which limits the kinds of lenders and limits access to capital in emerging markets
• Key solution: By incorporating the principle of “trust through consensus”, Goldfinch creates a way for borrowers to show creditworthiness based on the collective assessment of other participants rather than based on their crypto assets.
• Example: People that want to take out a personal loan stipulate the terms they are looking for. These terms are checked by ‘backers’ who are people who access the terms of the backers and decide to provide the first capital or not. Other people like you and me put up passive capital that earns a more moderate APY which is allocated to the different borrowers depending on how many backers have already committed capital. This ecosystem creates automated consumer loans for borrowers, high yield for active 1st capital providers, and moderate yield for passive capital providers, all without collateral.

#3 Paradigm Capital

1st = Exchanges (17.5%)

2nd = Capital markets (12.5%)

Interesting portfolio company:

Namebase

• Elevator: Why rent your name on the internet when you should own it.

• Key insight: No one actually owns their name. When you buy a domain for a website, you’re really leasing it to domain registrars who charge you an annual fee.
• Key solution: Handshake domain names provide true ownership, which means there are no yearly rental fees, just a one-time purchase fee.
• Example: A single entity named ICANN currently controls the entire DNS system. Meaning they have the final say on what top-level domains are allowed or not (org, com, etc). With complete ownership, you have control to create whichever top-level domain you want and then can simply host a website or become a registrar that sells subdomains to others.

#4 a16z

1st = Data/privacy/security infrastructure (13.2%)

2nd = Digital assets, NFTs, creators (13.2%)

Interesting portfolio company:

MakerDAO

• Elevator: A DAO (decentralized autonomous organization) issuing the Dai stablecoin that facilitates collateral-backed loans without an intermediary.
• Key insight: There are a few crucial problems blocking cryptocurrencies from becoming the de facto real-world currency. One problem is drastic price fluctuations in as little as a day (or hour), making things like lending and borrowing extremely risky.
• Key Solution: MakerDAO created Dai, a stablecoin that’s pegged to the US dollar, that stabilizes the price volatility of cryptocurrencies and enables lending and borrowing against multiple cryptocurrencies.
• Example: The importance of what MakerDAO built for lending and borrowing is that you will always only owe back what you initially borrowed (in addition to interest). This is because Dai is pegged to the US dollar and 1 Dai always = $1. If this weren’t the case, you could end up owing twice as much as you borrowed, and that could happen in as little as an hour.

#5 Sequoia Capital

Interesting portfolio company:

Fireblocks

• Elevator: offers financial institutions a platform to run a digital asset business, providing them with infrastructure to store, transfer and issue digital assets.
• Key insight: Hackers have stolen over $15 billion total in crypto in the past 8 years. This shift from cybercriminals hacking traditional finance to hacking digital assets lead to an opportunity to provide security to the blockchain.
• Key solution: The founders used their cybersecurity experience in mobility, cloud, and critical infrastructure and applied it to securing the blockchain using a new approach to digital asset security called MPC (multi-party computation).
• Example: MPC is a cryptographic technology that allows multiple parties to each hold secret information and then solve a problem that requires the input of all these secrets in a decentralized way, without ever sharing the secret information with one another. Fireblocks utilizes MPC to protect against things like private key compromise, internal employee collusion, and rogue admins.

2) What is the most interesting place to invest?

#1 Blockchain’s scalability and cost reduction issues are still priority number one (zk rollups, multi-network deployments). If the solutions to these issues haven’t been seeded already, I’d love to invest here.

#2 B2B payments, enabling cheaper and faster cross-border B2B payments, as well as solutions to current bottlenecks in capital efficiency and liquidity management.

#3 Anything compliance and security related to NFTs, and to starting and scaling a web3 company.

I’m actively investing in all things web3 related, so please reach out if you’re building anything in the space. Nick dot 5montana at gmail.com