5/27/2022 Mike Mann
Venture capital firm Andreessen Horowitz said it “formed a new $4.5 billion fund that will invest in cryptocurrency and Web 3 companies.”
Their founder, Marc Andreesen, is one of the smartest people in Silicon Valley ostensibly, having invented the web browser when he was in college; then investing in some of the best technology companies and profiting handsomely.
But Marc has advisors and partners, notably in this case “the a16z crypto team”, and it is possible if not probable that taken in whole their egos, greed and self-confidence have led their minds and investments out of the mainstream of the conservative investment community, now making undue, absurd bets by mistake (as opposed to consciously making rational, traditional investments.)
For example, investing in ‘crypto’ is nuts, where they have lost about 50% in the last year, despite the earlier hype cycle having taken them and their investors upwards, mostly in their ‘Coinbase’ investment. I wonder if they have any of their personal funds on the line, or it is 100% investors’ risk, with AH getting fees no matter what, and sharing in any potential upside.
Here is what the world’s smartest financial people think about investing client funds in crypto: https://qz.com/1089740/what-the-worlds-financial-bigwigs-think-about-bitcoin/
Ostensibly ‘crypto’ actually stands for ‘cryptography’ which is merely a small growing subset of the overall software programming marketspace, which itself is suffering with the rest of the extremely broken Biden economy, and is unlikely to advance in the near future.
They have around $7 billion of investor money on the line at this point. So even if the crypto marketspace were legitimate, which it is not; and even if the economy was good, which it is not; and even if they were great stock pickers, which they no longer are, then it would still be an incredibly risky investment, and highly unlikely to pay out in the long run.
In the short term it could be anyone’s guess what happens with these spaces. AH doesn’t even proclaim they are investing in cryptography per se; it is actually even much more cryptic. In their press release the investments are stated as “cryptocurrency” and ‘Web3”. The latter has some chance if they are super careful in their selections, but not the former in my estimation. (Check back here in a couple years to find me being correct again.) These investments include the incredibly risky and hurting areas of “blockchain gaming, decentralized finance (DeFi), decentralized social media and non-fungible tokens (NFT).”
The flip side of this equation is that venture capitalists often make out big time on a few of their overall investments, making their many losses appear inconsequential. I guess this is possible, but still too unlikely and risky to bet on it. Short.