How Venture Is Navigating Crypto IPOs

This episode unpacks the shifting landscape of crypto venture capital, exploring how VCs are navigating the new dynamics of crypto IPOs, equity investments, and the speculative fervor around emerging on-chain assets.

Introduction of Guests

• The episode features Diogo, a partner at Hāun Ventures and co-founder of Anchorage, and Rob, a partner at Dragonfly.
• Diogo, with a background as an engineer, describes his current role as deploying capital, a characterization Rob playfully challenges, emphasizing Diogo's role as a venture capitalist.
• Diogo's self-description as an "engineer that deploys capital" versus Rob's insistence on the "venture capitalist" label sets a candid and engaging tone for the discussion.

The Current State of Crypto Venture Capital Fundraising

• Rob outlines a "have and have nots" fundraising environment in current crypto venture capital. This is a significant shift from the 2021 boom when capital was abundant for nearly all firms.
• LPs (Limited Partners) are the institutional or high-net-worth investors who commit capital to venture capital funds.
• Large, established funds are still successfully raising substantial amounts, though often less than their 2021 peaks. Conversely, many firms that raised excessively during the boom are now facing difficulties, securing smaller funds or struggling to raise at all.
• Rob views this market correction as a "good reset," leading to a more appropriate "right-sizing of the industry," a trend also observed in traditional Web2 venture capital.
• Diogo adds that LP sentiment typically reflects a "weighted moving average" of market performance over the previous 12 to 18 months.
• He also highlights the denominator effect: when public market valuations fall, the proportion of illiquid venture capital in an LP's portfolio can appear inflated, often leading them to reduce new commitments to venture funds.

Venture Performance vs. Bitcoin and Evolving LP Expectations

• A critical challenge for crypto VCs is demonstrating performance that outstrips simply holding Bitcoin, a question increasingly posed by LPs.
• Rob notes that while two of Dragonfly's three funds are outperforming Bitcoin, this is not the general experience across the industry.
• LPs have become more sophisticated, demanding clear justification for investing in a VC fund versus direct Bitcoin exposure or crypto ETFs (Exchange-Traded Funds), which are investment funds traded on stock exchanges offering easier access to crypto assets.
• Santi, one of the hosts, queries whether the success of public offerings like Circle's highly oversubscribed IPO might steer LPs towards publicly traded crypto-related companies over illiquid venture fund investments.

The Resurgence of Equity Investments and M&A Activity

• Diogo emphasizes the vitality of the private markets, pointing to "over billion dollar acquisitions" and significant markups in companies such as Bridge (acquired by Stripe). This activity is providing tangible returns and market validation.
• Rob observes that Circle's high valuation (trading at approximately 33 times Last Twelve Months net revenue, compared to Coinbase's 9 times) indicates strong investor enthusiasm specifically for stablecoins, more so than for the broader crypto market.
• LTM net revs (Last Twelve Months net revenue) is a financial metric indicating a company's revenue over the preceding year.
• The M&A market has shown renewed vigor, with acquisitions like Bridge and Hidden Road signaling investor interest in particular segments of the crypto industry. This trend is crucial for Crypto AI researchers tracking market consolidation and strategic acquisitions.

The Evolving Venture Playbook: Equity, Tokens, and Exits

• The discussion charts the evolution of crypto venture strategy: initially focusing on traditional equity in "wrapper" businesses (e.g., Anchorage, Coinbase, Fireblocks), then shifting to on-chain token investments during the L1 (Layer 1 foundational blockchains) and L2 (Layer 2 scaling solutions) boom, and now potentially returning to equity as IPO and M&A exit paths become more defined.
• Diogo explains Hāun Ventures’ adaptable strategy, investing in both equity and tokens, often securing token warrants (options to purchase tokens at a predetermined price). This flexibility is vital as early-stage companies may have uncertain paths to value capture.
• While tokens offer the advantage of earlier liquidity, a hallmark of crypto venture, recent successes like Circle's IPO are demonstrating the potential for substantial cash returns from equity investments, which is encouraging for LPs.
• Diogo offers a candid assessment of Circle: "They are a money market fund that wants to be a payment businesses. So they're trading at payment business um levels, but they're really a money market fund." He expressed surprise at its $19 billion market capitalization.

Navigating Crypto IPOs: Prospects and Challenges

• Circle's successful IPO has brightened the prospects for other traditional crypto businesses like Anchorage, Fireblocks, and Chainalysis to go public, especially by potentially making underwriters (financial institutions managing IPOs) more receptive.
• A major obstacle remains the typical revenue threshold for IPOs, often cited as $300-$500 million annually, which many crypto companies have yet to achieve.
• Diogo hopes Circle's performance will "whet their appetite," encouraging underwriters to consider crypto companies with lower revenues.
• Rob expresses caution, suggesting the "insatiable demand" for Circle might not extend to all crypto companies. He anticipates some "less than ideal" companies might "force themselves public" via SPACs (Special Purpose Acquisition Companies) or smaller offerings to achieve liquidity.
• The case of Exodus, a crypto wallet company that went public with a sub-scale IPO (around $50-$80M run rate), illustrates the difficulties smaller IPOs face in attracting analyst coverage and maintaining post-IPO price stability.
• Diogo: "If you're much lower than that [~$3-5B valuation], analysts are not going to take their time to cover you...which means that there's very limited liquidity and then the price may languish."

Categories for Potential Crypto IPOs and Anchorage's Stance

• Diogo outlines three categories of companies that could be next for IPOs:
  • Businesses with established public market comparables and significant scale (e.g., Kraken).
  • Companies with recurring revenue models, similar to SaaS products (e.g., Fireblocks, Chainalysis).
  • Businesses whose revenue is heavily tied to cryptocurrency prices (less ideal for IPO due to volatility, unless well-diversified).
• Regarding Anchorage, Diogo states that going public has always been a long-term objective.
• "The only thing that is more trusted than a federal bank is a publicly traded federal bank."
• As a federally chartered bank, Anchorage already possesses robust financial reporting systems, which simplifies IPO preparations. The decision to IPO hinges on strategic timing to enhance trust, rather than an immediate necessity, emphasizing "optionality."

Scrutinizing Public Crypto Treasury Strategies

• Rob voices skepticism towards "public crypto treasury strategies," viewing them as "point-in-time solutions that have no reason to exist over any reasonably mid to long-term time horizon."
• These investment vehicles often feature short lock-up periods and can trade at a premium to their NAV (Net Asset Value). However, Rob warns they are likely to revert to NAV, or trade below it in distressed markets, potentially creating "death spirals" if debt is involved.
• He draws parallels to the historical GBTC (Grayscale Bitcoin Trust) trade, where a persistent premium eventually collapsed, causing significant losses for firms like Three Arrows Capital.
• Diogo aligns with this view, categorizing these strategies as "trades" rather than long-term venture investments, which are inconsistent with Hāun Ventures' focus on sustainable, method-driven returns for their LPs.

Investor Demand: Speculation vs. Fundamental Value

• Santi questions whether the current speculative appetite for NAV-inflated trades will translate into genuine demand for "real crypto businesses" if more decide to IPO.
• Rob observes that investors in many current public crypto treasury vehicles are not fundamental, long-term holders but are often engaged in arbitrage or short-term speculative plays.
• Diogo underscores that Hāun's LPs, which include sovereign wealth funds and major foundations, seek professional management for diversified exposure to both equity and tokens in the crypto space. They prioritize a "repeatable process that works over multiple funds" over opportunistic, short-term trades.
• Diogo humorously admits that both he and "Spicy Rob" (a nickname for Rob) "mid-curved Circle," indicating their initial skepticism about its high valuation.

The Impact of Capital-Light Success Stories like Hyperliquid

• The success of capital-light companies such as Hyperliquid, which can achieve substantial scale with small teams and minimal funding, mirrors a trend also visible in the AI sector.
• Rob notes this phenomenon has pushed VCs to concentrate more on seed and pre-seed stages (the earliest funding rounds for startups), consequently driving up valuations in these initial rounds.
• However, Rob argues that large funds focusing heavily on these very early stages can be "somewhat illogical to the way venture math actually works," as small investments are unlikely to generate returns significant enough to impact a large fund. This, he suggests, creates opportunities in later-stage (Series B, C, D) funding rounds where fewer investors are currently active.
• Diogo adds that major successes like Hyperliquid (achieving "deca-corn" status) recalibrate VC models, making $10 billion outcomes appear more attainable, thereby justifying higher entry valuations at earlier stages.

Pump.fun's Controversial Fundraise

• The discussion addresses Pump.fun's rumored $1 billion fundraise at a $4 billion valuation.
• Diogo describes its fundraising mechanism as an attempt to create equal footing for retail and institutional investors, possibly through direct sales on exchanges or auctions. This approach reflects the founders' criticism of "VC coins," where early investors often receive preferential terms.
• Rob, while not personally investing, considers the valuation not "crazy" given Pump.fun's significant user adoption and revenue, acknowledging the platform's value in facilitating token launches.
• Rob: "They've clearly done a or they've offered a business that people have wanted and people have been insatiable in using it...that service is valuable and it's probably worth the $4 billion."

The Persistent Debate on Meme Coins

• Diogo firmly states his view that meme coins (cryptocurrencies inspired by internet jokes, often lacking utility) are "net negative for crypto as an overall." He colorfully likens the experience for new users to being "punched in the face."
• He argues that meme coins offer "negative EV" (Expected Value) for both users and the broader crypto space. While they might be "pure" in not feigning long-term value, unlike outright scams, they still fall short of contributing positively.
• When Santi asks if AI tokens lacking substance are worse, Diogo clarifies that deliberate scams are the most harmful, but meme coins remain detrimental.

Promising Frontiers: RWA, On-Chain IPOs, and Stablecoin Evolution

• Diogo identifies RWA (Real World Assets) tokenization as a significant emerging area, citing stablecoins (tokenized US dollars) as its first major success.
• He proposes "on-chain IPOs" as an innovative solution for companies that don't meet traditional IPO revenue requirements (e.g., $50M run rate instead of $300-$500M). This could create an intermediate step between Over-The-Counter (OTC) trading and major exchange listings like NASDAQ.
• Diogo: "Instead of meme coins, we'd be trading like crypto low market cap companies. That'd be much much much more productive."
• Rob concurs on the potential of broader tokenization and asserts that the "stablecoin trade is not over," especially concerning infrastructure for usability and value-added consumer finance applications.
• Diogo elaborates that value capture in the stablecoin ecosystem is poised to invert: currently, issuers capture most of the revenue, but eventually, applications built atop stablecoins will secure more value, potentially paving the way for the "first truly global fintechs."

Distribution, Stablecoin Use Cases, and Incumbent Disruption

• Santi explores whether it's more strategic to invest in startups building new distribution channels or in established players like Robin Hood that can integrate crypto services into existing user bases.
• Rob leans towards leveraging existing distribution: "I would much rather find something that has distribution and rip out the current existing infrastructure and sell them something."
• A key enterprise application for stablecoins is cross-border treasury management. Large corporations currently face slow, inefficient, and error-prone systems for international fund transfers (Rob cites an example of JP Morgan misplacing a $2 million transfer for 14 days). Stablecoins offer transparency, speed, and improved efficiency for these operations.

X (Twitter) and PolyMarket Partnership

• The announcement of X (formerly Twitter) partnering with PolyMarket, a prediction market platform, is discussed.
• Rob, a PolyMarket shareholder, views the partnership as a "no-brainer," given PolyMarket's success in capturing public attention around major events and X's central role as a global conversation hub.
• Santi reflects on PolyMarket's journey, noting its success where earlier prediction markets like Augur (which did not use stablecoins for settlement) struggled. This highlights the critical importance of timing and adequate infrastructure for new technologies to thrive.
• The speakers consider the native integration of stablecoins and payment functionalities into X as a logical future development.

Ripple's Acquisition Strategy and Stablecoin Ambitions

• Ripple's strategy of utilizing its substantial treasury (derived from XRP sales) to acquire businesses like Hidden Road and Metaco is analyzed.
• Rob believes Ripple can effectively "buy themselves into an actual business," with a strong focus on their RLUSD stablecoin. He views the Hidden Road acquisition as a strategic move to distribute RLUSD, potentially positioning Ripple as a top 3-5 stablecoin issuer within 24-36 months.
• Rob: "I'm a believer there will probably be like five to seven stable coin issuers that actually matter...I expect that they [Ripple] will be one of those."
• Diogo expresses greater skepticism, asserting Ripple has "basically no chance at getting a stable coin to be successful" against established players like Circle, which possess massive distribution networks and balance sheets (Circle's market cap noted as exceeding $20 billion).

Key Disagreements and Investment Philosophies

• When discussing their primary points of disagreement, Rob suggests they hold differing views on the future of regulation. He is more optimistic about the persistence of a "robust non-custodial non-KYC (Know Your Customer) financial system" and anticipates increased privacy and some deregulation in DeFi. Diogo, by implication, might be more focused on regulated on-chain assets.
• Non-custodial systems allow users to control their own private keys and assets directly.
• Diogo acknowledges that their investment disagreements are evident in their respective fund portfolios but emphasizes their mutual respect and history of successful co-investments.
• Hāun Ventures' comparatively larger allocation to equity investments is attributed to its fund structure (including a billion-dollar growth fund) and a strategy of maintaining flexibility to adapt to market cycles, where either equity or tokens might offer superior performance.

Reflective and Strategic Conclusion

The crypto venture landscape is maturing, with a renewed focus on sustainable equity-based businesses and viable IPO pathways, even as speculative on-chain asset creation continues. Investors and researchers must discern between transient trading opportunities and foundational shifts towards tokenized real-world value and regulated on-chain finance.