Andreessen Horowitz is the largest cryptocurrency investor in Silicon Valley. The venture capital firm, nicknamed a16z, is therefore also one of the main victims of the crisis they are going through right now. Now he has to deal with investors worried about the prospect of a “crypto winter”, as there may have been for artificial intelligence or virtual reality.
a16z has invested heavily in cryptocurrencies
It must be said that the company has injected funds into many Web3 companies such as Coinbase, OpenSea or Solana. An initiative led by Chris Dixon, general partner of the company and main decision maker of its investments in cryptocurrencies. His influence in the community is considerable and he has contributed in particular to the growth of fundraising in NFTs.
It has invested over $ 7.6 billion in the industry so far. In 2018 it launched a crypto fund for a total of 350 million dollars (the first of its kind), then a second in 2020 and a third in June 2021, the result of a flash fundraising of 2.2 billion dollars. The company doubled last May with the announcement of the closure of a new $ 4.5 billion fund dedicated to the sector, but the timing was not right, with deflation due to the falling stock, tech and bitcoin price bubble. .
Crypto in crisis
Inflation and rates imposed by central banks are causing parallel currencies to collapse. At the time of writing this article, bitcoin is worth around 20,712 euros, a far cry (-70%) from the almost 69,000 euros (record value) shown in November 2021, which speaks volumes about the market collapse. Solana, an emerging cryptocurrency that Andreessen Horowitz bought in June 2021, has lost more than 80% of its value since the beginning of the year.
Many companies supported by a16z are facing a decline in demand. This is particularly the case with Coinbase, whose number of users has fallen sharply. In the first six months of the year, Andreessen Horowitz lost $ 2.9 billion in relation to his remaining stake in the company, which also lost 80% of its value. The demand for NFT, this application of the blockchain to the exchange of digital assets, also seems to have dwindled to nothing.
-40% in six months for the main fund a16z
On Wednesday, October 27, 2022, the Wall Street Journal reported according to “people familiar with the matter” that Andreessen’s leading crypto fund lost about 40% of its value in the first half of 2022. Overall, the ecosystem is becoming more complicated with the tightening of regulation in most Western countries. The lack of regulation had until then facilitated the creation of thousands of cryptocurrencies, many of which ended up in spectacular failures, often linked to scams.
As a result, California’s VC still slowed its investments in the crypto ecosystem, despite record liquidity. The company announced nine cryptocurrency startup deals in the third quarter of 2022, down from the announcement of 26 in the fourth quarter of 2021. The company has also reduced the value of its second and third crypto funds this year.
In profit despite everything
But if the balance of the last few months is gloomy, it should not wipe out the hefty profits already made by Andreessen thanks to cryptocurrencies. The company is behind one of the most profitable bets in venture capital history, returning more than $ 4 billion worth of shares to investors in the two months following the IPO on the Coinbase exchange with a direct listing in April 2021. By the end of 2021, Andreessen Horowitz had multiplied his initial investment by 10.6 times. So even with the current “cryptocurrency winter” and the loss of 50-60% of the bitcoin price, a16z is definitely still profitable …
“A very long-term horizon”
And above all, this does not prevent Chris Nixon from firmly believing in the future of the sector, and from continuing to invest in it. Holding on to his conviction, he told the WSJ that he is thinking of “a very long-term horizon” for cryptocurrencies, as the industry “is only in the early stages of user acquisition.”
According to him, the downturn in the market is even “an opportunity for the company to continue supporting cryptocurrency entrepreneurs.” “What I’m looking at is not prices. I look at the activity of entrepreneurs and developers. This is the basic metric,” he continued, remaining “true to the cryptocentric vision of the Internet called Web3.”
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