Zebeth Media Solutions

Tom Schmidt

‘I’m worried about the overall lack of LP appetite going forward.’ • ZebethMedia

During an unprecedented bull run, crypto-focused investors raised, and deployed, billions of dollars in capital. But now, not only are VCs operating in a bearish crypto market, they are navigating the fallout of the FTX collapse and the potential impact it will have on their investment strategies moving forward. Double Down founder and general partner Magdalena “Mags” Kala and Dragonfly general partner Tom Schmidt shared their views at ZebethMedia’s crypto conference in Miami on Thursday on what’s next in crypto in the wake of the FTX drama. Luckily, the pair each closed their respective funds this year — Schmidt’s firm closing on an “oversubscribed” $650 million vehicle — and Kala’s Double Down just one week before all the FTX goings-on went down. Both say they had already planned to proceed cautiously in deploying their capital, but now even more so. “I am worried about contagion risk and for the other shoes to drop,” said Schmidt, who counts a number of exchanges in his firm’s portfolio. “We’re still holding our breaths and taking a pause to reevaluate what we will do in the coming year.” “I’m more worried about builders not entering the space, builders leaving the space and the overall lack of LP appetite going forward,” he admitted. Kala said she feels fortunate to be sitting on dry powder in light of the current macro environment. “A lot of those who raised last year don’t want to have to raise again in 2023,” she said. “And so I think we will see a slowdown and higher bar for projects.”  Schmidt said he has been “very slowly” deploying out of his firm’s third fund. “I have a reputation for being critical, and going deep to understand what’s happening,” he said. “Our long-term thesis is to use technology to create a new set of financial services, a financial substrate. And what we’re looking for are companies that fit that idea…at the same level of diligence.” A lack of diligence has been cited with regards to the FTX debacle, with many wondering how the crypto exchange managed to raise so much money despite what Schmidt called “red flags.” “The thing about FTX and Alameda is that it was so unbelievable when you heard it,” he said. “We were never fans. This was supposed to be blue chip and have blue chip investors backing them but the numbers never made sense. If you looked at how much they were making and how much they were spending on stadium sponsorships and donations, nothing really made sense.” In Kala’s view, the whole debacle highlights that “decentralization is actually needed.” But she is not surprised that many investors may have overlooked so-called red flags. “From a diligence standpoint, it can be that you see what you want to see,” Kala said. “In the moment you can be so taken by the narrative.” Schmidt believes that the past few years represented an “anomaly” in diligence and the traditional venture process. He recalls meetings with crossover funds backing a company, in some cases deploying 20x more capital than him, where the investor clearly did not have a fundamental understanding of what the company was doing. Overall, he does believe that regulation played a role in the FTX saga. “Certainly regulation could have helped. It was this certain environment that pushed them offshore,” Schmidt said. “I expect we’ll see more of an attitude adjustment…I’d like to see the U.S. be a leader on this front.” For Mala, “nothing has changed” with regard to the core fundamentals of crypto. She described FTX CEO Sam Bankman-Fried’s efforts when it came to regulation being “more like a dog and pony show.” “The real change is happening with real players,” she said. “But also the other thing that we see with VCs is that slowly we are having this change of guard who are actually knowledgeable [about crypto.]”

Dragonfly, Haun Ventures and Sequoia talk web3 and more at TC Sessions: Crypto • ZebethMedia

While the overall crypto markets have been in a rough spot lately, web3 venture capitalists have never had more conviction — or more funding at their disposal — to back startups and teams building in the space. The big question on their minds is whether tokens and startup valuations have bottomed out, or if they need to wait a bit longer to score the best possible deal. When to place your bets is a delicate balance in any tech sector, never mind one as rambunctious as crypto. That’s one reason why we’re stoked that Chris Ahn, partner at Haun Ventures; Michelle Bailhe, partner at Sequoia; and Tom Schmidt, general partner at Dragonfly will join us onstage at TC Sessions: Crypto on November 17 in Miami. We’re looking forward to hearing Ahn’s take on how the regulatory landscape is evolving in crypto, both in the U.S. and abroad, and how web3 startups can effectively navigate political and legal uncertainty. We can’t wait to hear Schmidt’s take on what it’s like to be an investor at a crypto-native VC firm as more traditional venture firms move into the space. Is Dragonfly as optimistic about the crypto market as it was last April when the VC firm closed its third venture fund to the (oversubscribed) tune of $650 million? Inquiring minds want to know. Meanwhile, Bailhe brings valuable perspective — from her standpoint as a generalist growth investor at a venture firm that made its name in web2 — on how the web3 space is developing relative to the broader tech ecosystem. We’ll be sure to ask all three panelists how their firms are navigating the competitive dynamics between crypto-native investors and tech VCs with broader mandates for the best web3 deal flow. Chris Ahn, a partner at Haun Ventures, leads investments at both early and acceleration stages. Previously, Ahn was a partner at Index Ventures and led the firm’s crypto efforts, including investments in Fireblocks and Bridge. Prior to joining Index, Ahn helped build and lead the strategic finance and business operations teams at GitHub, and he led the acquisition with Microsoft. Ahn also spent time at Hellman & Friedman and started his career at Morgan Stanley. Michelle Bailhe, a partner at Sequoia, focuses on crypto, software and internet investments. She is involved with Sequoia’s investments in FTX, LayerZero, Fireblocks, Pilot and more. Prior to Sequoia, Bailhe worked at Hellman & Friedman, Google and McKinsey. Prior to joining Dragonfly as general partner, Tom Schmidt led product at 0x, and he worked as a product manager at Facebook and Instagram. Schmidt holds a degree in computer science from Stanford. Take advantage of early-bird pricing. Buy your pass today, and you’ll save $150. Then get ready to join the web3, DeFi and NFT communities at TC Sessions: Crypto on November 17 in Miami.

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