At USV, we have been active in the blockchain/crypto sector since 2011. At this time, we have direct investments in nine companies/projects in the crypto space and one exited investment. Companies in the blockchain/crypto sector make up about 15% of our active portfolio and closer to 25% of our recent investments.

But the venture capital fund model is not optimized for investing in the blockchain/crypto sector. Blockchain/crypto companies/projects often finance and monetize via tokens which can become liquid quickly and thus we can end up holding highly liquid and volatile positions which is not something we have traditionally done. And because USV operates under the venture capital exemption to Dodd-Frank, we are limited to 20% of our holdings at cost in “non-qualifying” investments, which include tokens.

So we have sought out other relationships in the sector that can allow us to get broad exposure to the most interesting companies and projects. Our most recent investment, which closed last week, is just that. USV became investors in Multicoin Capital, a fund that is focused exclusively on the blockchain/crypto/token sector. There are a lot of smart people thinking about and analyzing this emerging sector, but there aren’t many who are doing it so publicly and conversationally as the Multicoin team. Their blog posts are here and their tweets are here: (Kyle, Tushar) . Their opinions are often controversial and contrarian. You can make a lot of money by being right about something most people think is incorrect. So at USV, we appreciate and value original thinking.

Multicoin often talks about “venture capital economics with public market liquidity.” The token sector offers both, and that is partially what has caused USV some challenges making this sector work in our current fund structure. Multicoin is structured in a way that gives them and their investors the benefit of both. We are excited to be investors in Multicoin.

Multicoin joins a roster of other blockchain/crypto/token funds that USV has invested in over the last 18 months. That list includes Polychain Capital, Metastable Capital, Blocktower Capital, Arianna Simpson’s new fund Autonomous Partners, and Placeholder. Placeholder, like USV, uses a venture capital fund model for its investing. All of the other funds use more of a hedge fund model.

This portfolio of token funds gives USV a much broader reach across the blockchain/crypto/token sector than we would be able to get directly on our own and we also benefit enormously from the dialog and information sharing that exists across this network of investors.

USV has not become, and has no plans to become, a fund of funds. But the blockchain/crypto/token sector has some unique challenges for us and others in the venture capital business and we have taken a network approach to solving them, at least for now.

We have and will continue to invest directly in both companies and projects and both equity and tokens in this space, often in a syndicate that includes one or more of these token funds. It is an exciting time to be investing in blockchain/crypto/tokens and we are fortunate to be able to do it along with some of the best investors in the sector.