At a time when regulators in the US and elsewhere are finally cracking down on ICOs - though the industry as a whole has largely failed to shed its patina of shadiness - there's still at least one Silicon Valley VC firm that thinks launching a "long-term" ICO-focused VC fund is a smart idea.
As the Financial Times reports, Andreessen Horowitz is launching a $300 million hedge-fund style "venture capital" fund to invest in ICOs with a "typical venture-capital timeframe" of 10 years, or longer. The company has already named a former DOJ prosecutor as its first female partner - which is probably a smart move for a fund where sniffing out criminality and fraud should be a top-level skill.
The Silicon Valley investment firm announced it had raised $300m to back new cryptocurrency-related ideas, including investing directly in the currencies themselves, which have become the focus of massive financial speculation.
Andreessen also named Katie Haun, a former prosecutor at the Department of Justice, to help manage the fund, making her the firm’s first female general partner. Ms Haun led some of the most prominent enforcement actions in the area, including the DoJ’s investigation of Mt Gox, a bitcoin exchange that collapsed after a massive theft.
The timing of AH's decision is interesting, given that Fred Wilson of Union Square Ventures argued in a blog post published last week that "the venture capital fund model is not optimized for investing in the blockchain/crypto sector." In fact, it's difficult to imagine any investing model where an ICO-focused strategy makes sense. Price movements among ICO tokens typically correspondent to two qualities: hype, and manipulation.
But amazingly, the ICO market still looks attractive to some professional investors. As one Andreessen partner put it: "You squint one way and it’s a whole new asset class - you squint another way it looks a lot like the venture capital world," said Chris Dixon, an Andreessen partner.
And if you really look carefully, it looks like a scam. Andreessen said it has already made "a number" of investments in blockchain companies from its main fund, and the firm hopes the new dedicated fund will allow for more "flexibility" in their investments. This is a curious bit of hedging, which suggests that the firm is aware of the immense risk it is taking, and begs the question: why continue?