In a frankly stunning victory in the midst of a bear market for digital tokens, Morgan Creek Capital announced today that it has raised $40 million for a venture capital fund that will invest in blockchain startups. That’s a substantial sum for a VC fund, and even more notable is the prominent involvement of institutional investors: As reported by Coindesk, the two anchor investors are the police and public employee retirement funds of Fairfax County, Virginia.
Morgan Creek partner Anthony Pompliano told Coindesk he was not aware of any other blockchain VC fund raising money from public pensions. Other fund investors reportedly include a university, a hospital system, an insurance company, and a foundation—all of which, like pensions, tend to be fairly conservative investors. The fund has already closed deals for investments in Coinbase, TrustToken, Bakkt, and other marquee names in crypto.
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Some skeptics on Twitter have pointed out that $40 million is a small slice of the total funds managed even by the two pension funds, which have a total of nearly $6 billion in assets. But make no mistake: This is a major win for the blockchain industry, and will fuel serious growth in years to come.
But, perhaps surprisingly to some, cryptocurrency markets have been flat on the news so far. That accentuates a harsh truth: Morgan Creek’s big win is also a win for traditional capital and investing structures over the hyped promise of “ICOs,” or Initial Coin Offerings. ICO tokens broadly claimed to be able to capture value at the “protocol level,” and to democratize early-stage investing. But those fundamental ideas increasingly appear to have been premature, and scammers took advantage of them to steal more than a billion dollars in potential investment capital.
According to Pompliano, Morgan Creek’s VC fund may invest in a few token projects, and will hold a small amount of cryptocurrency. But its primary play will be taking early-stage equity positions in startups. Venture capital funds operate on the idea that, because many startups fail, most of those positions will ultimately be worthless. But the hope is that a few will be successful and either be acquired by a large company, or become independent public companies themselves through a public stock offering. In either case, an early-stage investment can become a huge payday.
Pompliano highlighted the shifting narrative himself this morning with a tweet stating in part: “The institutions aren’t coming. They’re already here.”
This morning our team at Morgan Creek Digital announced a new $40 million crypto venture fund anchored by two public pensions.
The institutions aren’t coming.
They’re already here. 🚀
— Pomp 🌪 (@APompliano) February 12, 2019
The idea that institutional money would enter the crypto space and save the day has been alluring for years, but it has almost always been centered around the promise of a bitcoin ETF or other vehicle that would make it easier for cash cows to invest directly in cryptocurrencies or digital tokens. Institutional venture capital won’t have such a direct impact on crypto prices, but is arguably healthier for the ecosystem in the long run, since it means more buildout of market-focused infrastructure. That’s particularly true since VC funds often take active roles in guiding companies they invest in to attract real customers and generate real revenue.
In a simultaneous development that is nearly as impressive, The Block reports that Chainalysis has raised a $30 million Series B round. The firm provides blockchain analytics services, including for governments. And just over a week ago, Facebook acquired the crypto startup Chainspace. The size of the buyout is still unknown, but such a high-profile acquisition is in and of itself validating for Morgan Creek’s plans.
Winter may still be long for investors holding ICO tokens and cryptocurrencies. But there’s now serious reason to believe 2019 could be a much better year than expected for the blockchain industry as a whole.