New York-based Union Square Ventures is investing in crypto and blockchain long-term, but unlike rival VC firm Andreessen Horowitz it won’t be creating a separate fund for doing so.
“We’re not planning to do it,” Albert Wenger, managing partner at Union Square Ventures told CNBC when asked about the possibility of a separate fund.
“We see a lot of upside to keeping it under the same roof.”
On Monday, Union Square Ventures rival firm Andreessen Horowitz announced that USD 300 million had been raised for its first-ever fund to be dedicated to investing in crypto companies, with executives describing it as an “all-weather” fund that they intend to invest in over time regardless of changes in market conditions.
In April both companies advised the US Securities and Exchange Commission to consider the idea of a cryptocurrency exemption, arguing that ICO tokens should be regarded as products that can be used to access services of startup companies rather than investments.
Wenger refers to token offerings as an “innovative new financing mechanism,” but maintains his stance that the ICO method isn’t suitable for every blockchain project.
“You’ve had a series of ICOs where investors have purchased at steep discounts — the second it starts trading those investors cash out, they make a handsome return, and someone else is left to hold the bag,” he said.
“The amount you’ve raised in an ICO or in a traditional way in this space is not going to turn out to be a great predictor of success,”
“Very interesting projects are also being pulled off on a lot, lot, lot less money.”
The foundational plumbing stage
Union Square Ventures will be focusing on investments that Wenger refers to as the “foundational plumbing” stage, where the money will be invested primarily in the technology supporting applications rather than the applications themselves.
“Investors are rationally pouring a lot of money into this sector because I think people are seeing the winning blockchain here might be worth a trillion, or a couple of trillion dollars,” Wenger said. “It’s not at all crazy to think that.”
The noises coming from Union Square Ventures and Wenger mirror those made by Apple co-founder Steve Wozniak, who suggested recently that blockchain could be a bubble, and that many companies could suffer the same fate as those who went bust during the dot-com era.
The general feeling though is that the risk of investing in crypto could pay off for early investors who spread their bets.
The stuff that works will float to the top
Holding a Ph.D. in IT from MIT, Wenger admits that he owns bitcoin, and it’s well-known that Union Square Ventures has also invested in bitcoin, but clarifies that he’s all too aware of the risks it poses to retail investors.
“I don’t think you should be in the space and say ‘I’m only going to hold bitcoin,’” Wenger said.
“At the moment, this whole space is a high-risk space, and I don’t think anybody should be investing all of their life savings.”
As far as the notion that the entire sector could fail, Wenger said there’s always a chance, but it’s “a pretty small chance.”
“The stuff that actually works will float to the top,” he said. “It might take a while, but time will tell.”
Lover of all things crypto, blockchain and AI, professional tech scribe & part of the editorial team at Crypto Disrupt.