After a long winter for cryptocurrency, GPs are returning to the LP fundraising market, buoyed by a bitcoin rally and the SEC’s approval of bitcoin exchange-traded funds.
Two of the most well-capitalized crypto-focused firms have launched new efforts. Pantera Capital is targeting $1.25 billion for a fund that will invest in early-stage tokens, liquid tokens and startup equity, according to a document on its website. FTX investor Paradigm is in discussions to raise between $750 million and $850 million for its next vehicle, Bloomberg reported.
The two firms are not alone: In the first three months of 2024, crypto-focused VC funds closed on $2.01 billion globally, compared to just $1.9 billion in all of 2023, according to PitchBook data.
Crypto-focused GPs are scheduling more LP meetings to leverage recent market bullishness for the industry: The price of bitcoin has risen more than 61% over the past six months and ethereum is up around 56% over the same time period.
Fresh wounds
Still, accessing institutional LPs is a significant challenge for these funds. Crypto VC investing has a reputation for volatility and unpredictability, according to Sid Trivedi, partner at Foundation Capital, which invests across enterprise SaaS, consumer, crypto and fintech. “University endowments, foundations, they’re still very early to crypto,” Trivedi said.
Several prominent institutional LPs were burned in the last crypto wave by high-profile bankruptcies. The Ontario Teachers’ Pension Plan wrote down its $95 million investment in fraudulent crypto exchange FTX to zero in late 2022, saying it would steer clear of future crypto bets.
CDPQ, Canada’s second-largest pension fund, swallowed a $150 million loss from its investment in now-defunct cryptocurrency lending platform Celsius Network in 2022. “The shotgun approach to running diligence has made it very hard [for institutional LPs] to feel comfortable,” Trivedi said.
Not to mention that institutional LPs can encounter regulatory hurdles when they hit a threshold percentage of capital invested in crypto. Canadian pension funds must declare any crypto assets exposure to the country’s financial watchdog.
But there are regulatory tailwinds for crypto GPs too. The SEC’s approval of bitcoin ETFs in January spurred greater certainty and optimism. “The approvals gave institutional investors much-needed regulatory certainty around the ETFs and an easy way to obtain more direct exposure to a crypto asset,” said David Adams, a financial services regulatory attorney at law firm Mintz.
A much more common source of LP capital for crypto funds over the past five years has been family offices, high-net-worth individuals and private wealth management.
But select high-profile crypto vehicles still managed to secure commitments from institutional LPs. CoinFund, a crypto-specialist firm with three strategies across seed, venture and liquid token opportunities transitioned in 2021 from an LP base of primarily high-net-worth individuals and family offices to an LP base that is 70% institutional investors, according to CIO Alex Felix.
“High-net-worths played a much bigger role in our early days,” Felix said, adding that many got overallocated to crypto during the last bull run in 2020 and 2021. Conversely, institutions have been “continuing to build their conviction, starting small,” and Felix expects renewed energy through 2024.
Pantera Capital and Paradigm did not respond to PitchBook’s requests for comment on their reported fundraising efforts.
Featured image by Roslan Rahman/Getty Images
