Corporate Venture Capital Rules Are Being Rewritten by Cryptocurrency Firms

Corporate Venture Capital Rules Are Being Rewritten by Cryptocurrency Firms

Art has a subjective value. An NFT’s worth defies description. Users are the source of revenue for gaming firms. Players on the blockchain make money off of one another. Day trading equities is a high-risk endeavour. Cryptocurrency day trading is akin to base jumping in one of those flying squirrel outfits.

Crypto has a tendency to distort and magnify anything it comes into contact with.

As a result, it’s no wonder that crypto corporate venture capital arms are upsetting the status quo.

CVCs strive to make money in a way that helps the parent company’s strategy. In that sense, crypto CVCs aren’t all that unique: they’ve made money while also helping to build the ecosystem, which has benefited everyone involved.

These startups-turned-investors are remarkably active. They back rivals and underwrite bailouts—and some are making a fortune along the way. Which makes them inescapably odd.

Crypto startups may simply be borrowing from the “coopetition” approach that gave the garage entrepreneurs of early Silicon Valley an advantage over tech conglomerates. They’re just taking it up a notch, playing the role of both founder and funder.

The ride together, die together approach of crypto CVCs fits the sector’s collectivist culture. The blockchain experiment is still proving that it is not merely a solution in search of a problem, that decentralized tech will fulfill needs in ways that powerful platforms have failed. Coopetition may be the way to meet that challenge.

In a world where digital assets are meant to move around a network, it follows that the larger the network, the greater the potential value of that asset. A Porsche in a garage may look lovely, but you don’t know its true value until you take it on the Autobahn.

“Web3 is all about the shared network effect,” said Yat Siu, co-founder and chairman of Animoca Brands, a blockchain game company that frequently invests in other startups. “It makes sense for us to invest in all the businesses that can build value on top of each other.” A similar argument underpins platform tech company VC arms like Salesforce Ventures, Amazon’s Alexa Fund and Microsoft’s M12. Invest in companies building on the platform, and the value of the platform increases.

But nobody owns the blockchain, so the amount of strategic value captured by a crypto CVC investment is rarely straightforward.
Paying it forward
Startups that invest in other startups are typically the exception, but in crypto, they seem to be the rule. Since the beginning of 2021, about half of all crypto VC deals included participation by a fellow crypto company, amounting to more than 1,300 deals, according to PitchBook data.

Animoca Brands has made more than 150 investments and backed many of crypto’s biggest names, including OpenSea, Dapper Labs and Sky Mavis. It has done so with a distributed approach to dealmaking. The company has an investment team, but checks can also be written by members of the product team, Siu said. Here’s another way blockchain startups are upsetting CVC norms: They unabashedly invest in rivals.

This isn’t totally without precedent. Ford backed EV truck maker Rivian, and Tyson Foods invested in Beyond Meat, for example. But Tyson sold its stake before launching its own plant-based burger. And Ford relinquished its board seat and ended a collaboration with Rivian prior to launching the electric F-150, which Ford reportedly argues isn’t a true competitor to Rivian’s luxury truck. Crypto startups, by contrast, show little sensitivity to apparent conflicts.

Coinbase, arguably the godfather of crypto CVC, has made investments in competitors BlockFi and FTX. Even more norm-altering was Coinbase’s decision to launch an NFT marketplace after it had invested in OpenSea, the leading NFT marketplace. (Andreessen Horowitz has led rounds for both companies, a possible sign that crypto weirdness is contagious.) Meanwhile, Animoca Brands has invested in dozens of blockchain gaming companies. And OpenSea has paid Coinbase’s favor forward by investing in Formfunction, yet another NFT marketplace.

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