a16z was established in 2009 by cofounders Marc Andreessen, who built early web browsers Mosaic and Netscape, and Ben Horowitz, who alongside Andreessen sold a software company to HP. The firm has a track record of investing in companies like Facebook, Instagram, Airbnb, and Slack.
In 2018, in search of the next big investment opportunity, a16z shifted its attention to crypto. Although it continues to invest in a variety of industries, the firm has raised more than $7.5 billion across four separate specialist crypto funds, on which it must now find a return. “We go where great founders are. You don’t want the VCs to tell you what to build,” says Sriram Krishnan, general partner at a16z, who leads crypto investment from the UK office. “This is what we think the best founders are working on.”
However, the crypto industry has not flattered itself of late. In 2022, the collapse of multiple large crypto businesses—among them crypto exchange FTX—led to a crisis of confidence and downturn in crypto prices that, in turn, led to further bankruptcies, the failure of crypto-friendly banks, and a regulatory backlash. In the period since, crypto founders have been sentenced to jail time in the US, celebrities have been charged by regulators with illegally peddling crypto coins without disclosing compensation, and billions of dollars’ worth of crypto has been stolen in scams and security breaches.
a16z has made a few bum crypto bets over the years too, like Diem, the now-defunct cryptocoin developed by Meta; Basis, a similar project, shuttered. In the first half of 2022, the value of a16z’s original crypto fund reportedly fell by 40 percent, though investors are still on track for a tenfold return.
Generalist VCs threw tens of billions of dollars at crypto startups in 2021 and 2022, but their attention has since been drawn elsewhere, implying a limited conviction in the technology’s long-term potential. “When the market crashed, a lot of investors ran away from the crypto space,” says Robert Le, a crypto analyst at market data company PitchBook. While the crypto market has since recovered, “generalist investors didn’t really come back,” he says.
“For generalist VCs, all eyes are on generative AI. Crypto is an excitement from the last wave,” says Edith Yeung, general partner at VC firm Race Capital, which invests in early-stage infrastructure startups. Herself an investor in crypto network Solana, Yeung says she is “cautiously optimistic” about the prospects of crypto startups in 2024 and “applauds” a16z’s continued focus, but her firm will favor AI. “A lot of VCs don’t have the resources to capture both,” she says.
The point of CSX is to inject “rocket fuel,” as Rosenthal puts it, into early-stage crypto startups capable of proving the technology is useful for more than money laundering and financial speculation. “The downturn in the crypto market did a good job of making the people only there to make a quick buck—the tourists—pivot to AI, where they saw the next quick buck,” says Rosenthal. “The people who have stayed are committed, hardcore technologists. That’s represented in our selection.”
