Cryptocurrency investment firm Polychain Capital is raising $200 million for a second fund aimed at venture investing, a funding goal that would top its first venture fund by $25 million.
According to an investor slide deck obtained by CoinDesk, the second venture fund opened at the beginning of 2020 and is accepting minimum investments of $1 million for up to three years. Like Polychain Capital’s first venture fund, the new money will back early-stage crypto startups raising pre-seed, seed and Series A funding rounds.
The first venture fund, which raised $175 million from investors who cut checks normally between $500,000 and $5 million, invested most of its capital by the end of last year after launching in the first quarter of 2018, according to the Polychain slide deck. The capital, the deck says, was split 40 percent to startups that improved on existing blockchain infrastructure and 60 percent to startups that explored less-tested industry concepts.
The second venture fund was registered in December of last year, according to U.S. Securities and Exchange Commission (SEC) documents. The deck does not indicate the amount Polychain Capital has raised for the second venture fund. Polychain Capital declined to comment on funding progress and specifics due to investor restrictions.
Blockchain networks with enhanced privacy, engineering and flexibility will be prioritized in the second venture fund, the deck says, piggybacking on existing investments in cloud platform Dfinity and blockchain interoperability projects Cosmos and Polkadot.
With its first fund, Polychain says it sought exposure to cryptocurrency exchanges and custodians through the investments that were considered foundational to the industry, a strategy that homes in on Polychain’s banner investment, Coinbase, the San Francisco-based crypto exchange and tech unicorn.
More novel investments in the flagship venture portfolio, meanwhile, trended toward decentralized financial entities – digitized financial instruments and brokers that self-regulate themselves and avoid manual oversight while often settling in crypto. So far, Polychain has backed decentralized finance (DeFi) powerhouse MakerDAO, margin trading book dYdX, blockchain bank Dharma and lending protocol Compound, among others.
Venture trajectory
To date, none of Polychain Capital’s reported venture fund investments has issued a public offering or been acquired. Such exits traditionally allow a fund to cash out its holdings in a portfolio company and deliver sizable returns to fund investors.
Investors in Polychain Capital, or limited partners, have reportedly counted technology venture capital firms Andreessen Horowitz, Sequoia Capital, Founders Fund and Union Square Ventures – some of which have co-invested in Polychain portfolio companies.
SEC filings show that assets across all Polychain Capital funds dipped from $967.8 million in August 2018 to $595.1 million in March 2019. The total assets accounted for cryptocurrencies, equity in company investments and unspent investor money as valued at the time the disclosure forms were filed.
Of those funds, Polychain Capital claims in the new investor deck that its cryptocurrency asset fund – a hedge fund launched in 2016 that trades short-term and long-term positions of digital assets – manages some $550 million. The deck, which appears to have been produced in or after October 2019, notes that the hedge fund is simultaneously taking investments north of $1 million on a rolling basis.
An early pioneer in the crypto VC space, Polychain Capital was founded in San Francisco by Olaf Carlson-Wee, the first employee and former head of risk at Coinbase. Polychain CTO Rob Witoff and Polychain partners Sam Rosenblum and Aurora Harshner are also alumni of Coinbase.
Polychain Capital's two executive partners aside from Carlson-Wee and Witoff – President Joe Eagan and joint COO-CFO Matt Perona – hail from traditional finance backgrounds. Perona was CFO of Criterion Capital from 2015 to 2018. Eagan was previously COO of Tiger Legatus, a consumer stock hedge fund.