The Cambridge venture capital firm Castle Island Ventures has put together its second-ever fund, raising $50 million to invest in early-stage startups in the blockchain space.
The firm has largely shunned investments in cryptocurrencies themselves since it was founded in 2018 by two former Fidelity Investments employees. Instead, it has looked for “picks and shovels,” such as companies providing financial and other services around crypto investments, or something further afield, like a firm using blockchain to fight insurance fraud.
With its first $30 million fund, Castle Island focused on financial markets infrastructure, in particular.
“Every financial firm in the world is going to have to integrate with public blockchain systems,” founding partner Matt Walsh said. “There are two categories right now: the firms that understand that, and the firms that don’t.”
Walsh and the firm’s other founding partner, Nic Carter, are plotting a similar strategy for the second fund. A few things have changed since the firm launched, Walsh said, including financial services giants’ increasing comfort with cryptocurrency.
“People perceived Fidelity as crazy a few years ago,” he said, referring to his former employer's embrace of crypto-related services.
Walsh also believes that, at least to a degree, the bloom is off the rose of initial offerings of new cryptos that were especially popular at the end of last decade.
“I think in a lot of ways we’ve been vindicated for not investing in these ICOs. A lot of these things were and are unregistered securities offerings,” he said.
Castle Island has made 20 investments so far, including in several Boston-area startups. They include Flipside Crypto and Coin Metrics, both providers of crypto-related data and business intelligence, as well as Framingham-based DUST Identity, which uses microscopic diamonds to mark an object as unique, and Natick-based Attestiv, which provides technology that insurance companies and other businesses can use to protect against deception from “deepfake” photos.
