a16z Crypto Fund Balloons to $2 Billion

Andreessen Horowitz's third crypto fund is in talks to raise $2 billion.

Andreessen Horowitz is in the process of tripling down on crypto, raising its third crypto fund since 2018. Sources tell me that Andreessen Horowitz is targeting $2 billion for its third crypto fund. That’s double the size of what many people are expecting.

The new cash heap would only raise the stature of the fund’s leaders, Chris Dixon and Katie Haun. I expect the duo to have more latitude to operate independently from the rest of the venture firm, which is still tightly controlled by co-founders Marc Andreessen and Ben Horowitz.

The huge new fund will only magnify the impression that Andreessen Horowitz is playing a different game than its peers on Sand Hill Road. In November 2020, the firm declared that it had $16.5 billion under management. And limited partners seem to be clamoring for more. (Until the money is wired, there is always a chance that Andreessen Horowitz ends up raising less than $2 billion.)

Andreessen Horowitz’s rivals snark that the firm is chasing management fees — those lofty payouts firms receive just for taking people’s money. I hear that the Crypto Fund plans to charge a 2.5% management fee for most of the first decade of the fund. On a $2 billion fund, that could mean $50 million a year in fees alone. Andreessen Horowitz would see plenty of upside too with 25% carry until the fund doubles and then 30% carry after that. The firm wouldn’t take carry if it loses money. (I hear those terms are pretty standard for Andreessen Horowitz funds.)

Andreessen Horowitz’s investment in Coinbase is a big winner, whatever the price of Bitcoin today. The firm distributed at least some of the Coinbase shares soon after Coinbase went public, a source told me. The firm sold at least some of its Ethereum holdings at around $3,800 before the price crashed, a source said. Today, ETH trades at $2,749.

I hear a lot of buzz about investment Uniswap. Andreessen Horowitz led the Series A last year. Andreessen Horowitz announced today that it was leading a $40 million Series A investment in the crypto trading engineering firm Talos.

Andreessen Horowitz’s new crypto fund comes as there’s an increasing arms race in crypto investing. Coinbase co-founder Fred Ehrsam and ex-Sequoia partner Matt Huang’s Paradigm has quickly established itself as one of the top firms in the crypto world. A financial filing from the end of last year discloses that Paradigm has raised $740 million.

After Paradigm raised its initial round of funding in 2018, it dumped much of its holdings directly into cryptocurrencies. The Andreessen fund and Paradigm have frenemy status. I hear that some Andreessen Horowitz partners are limited partners in Paradigm.

I know about at least one unannounced dedicated crypto fund in the works. I’m still reporting out the details. (Email me if you’ve heard of one.)

It will be just as interesting to see who dives into crypto as it will be to see who decides to sit this goldrush out. But Andreessen Horowitz looks like it will be well positioned to fund the next Coinbase.

Update: I clarified that some Andreessen Horowitz partners are LPs in Paradigm.