Will anyone shed a tear for a16z’s terrible year? The value of the VC firm’s crypto holdings has fallen 40% this year.

It’s not just retail crypto investors who have had a miserable year. According to the Wall Street Journal, the industry’s 800-pound gorilla, Andreessen Horowitz (a16z), is also being glued as the venture capital fund’s flagship crypto fund lost 40% of its value in the first half of the year. The report suggests some investors are nervous that the company — which made its name with early bets on Facebook — is getting too deep into crypto.

Needless to say, a16z’s current plight doesn’t garner much sympathy. The company isn’t exactly known for its humility, and its self-promotion and penchant for bombast have shaken others in Silicon Valley. Others are simply saddened by the company’s massive size, which allows it to throw its weight behind when it comes to gaining access to hot deals.

While a little glee is always fun, a16z is unlikely to be in any real trouble. As the WSJ report acknowledges, the company’s crypto fund has previously produced the best returns in venture capital history, while a16z has returned billions in profits to its investors. And while 2022 was a terrible year for a16z’s balance sheet, few will remember it when the next crypto boom cycle returns and – which is highly likely – the company starts delivering 5x to 10x returns again.

But that doesn’t mean all is well in the world of crypto venture capital. I recently spoke to Sarah Tavel, a general partner at Benchmark who is responsible for the firm’s crypto betting and is widely respected in Silicon Valley. She said crypto investing has been defined by a handful of giants — notably a16z, Paradigm, and Haun Ventures — chasing too few high-quality startups. This has led to crowded investment rounds and unrealistic valuations.

Tavel also told me that the crypto industry is addicted to speculation and empty calorie investing – with a focus on manias like yield farming and initial coin offerings. She says this fixation on speculation has come at the expense of consumers, as VC firms focus on token gimmicks rather than building products that people want to use. It has also created mistrust of the entire crypto environment.

It will be interesting to see if the current downturn will result in a cultural shift in the crypto VC world, or if the emergence of newer firms run by younger people – Variant comes to mind – will push VCs to evolve to focus more on consumer goods. It’s too early to tell. But right now, few would complain if VCs spent less time with thought leaders and more time building something useful.

Jeff John Roberts
[email protected]
@jeffjohnroberts

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