Sequoia Capital is launching a cryptocurrency-focused fund, becoming the latest venture firm to do so.
The influential Menlo Park firm announced Thursday it's launching a $500 million to $600 million fund that will concentrate on investing in cryptocurrency tokens and other digital assets. The move marks the first time the 50-year-old firm has created a fund that's focused on a particular sector.
The firm has previously invested in tokens and directly in cryptocurrency-related startups but decided it was time to take a more active role in the market, partners Michelle Bailhe, Shaun Maguire and Alfred Lin said in a blog post.
"Sequoia Crypto Fund complements our broader commitment to crypto," Bailhe, Maguire and Lin said in their post. "Our goal with this fund is to participate more actively in protocols, better support token-only projects, and learn by doing ourselves."
The new fund will focus primarily on investing in tokens that are traded on third-party exchanges. At the center of many cryptocurrency efforts are loosely organized projects rather than individual companies. Those projects typically don't have a board of directors. Instead, they're governed by owners of their tokens, who have the right to vote on major decisions.
Sequoia is already a major backer of cryptocurrency and blockchain startups and projects. About a fifth of its investments last year went into that sector.
Last fall, Sequoia adopted a new structure that makes it easier for the firm to put greater amounts of money into such investments. Securities and Exchange Commission rules require venture funds to invest at least 80% of their assets in stocks, typically of private companies. That means they can devote no more than 20% of their assets to other investments, such as cryptocurrencies or tokens.
Sequoia changed its classification to being investment adviser, which allows it to devote a greater portion of its fund assets to cryptocurrencies and related investments. Andreessen Horowitz made a similar move for the same reason in 2019.
Andreessen Horowitz is also among the growing number of venture firms that's launched funds dedicated to cryptocurrency investments.
Crytocurrency investments are soaring
Global venture investments in cryptocurrency and blockchain-related companies and tokens last year soared by more than 700% to $25.2 billion, according to CB Insights. That's more than in every previous year combined. U.S.-based companies and projects raked in $14.1 billion of that total.
Cryptocurrency startups and projects in the New York City area raised $6.5 billion 2021, the most of any region in the country, according to CB Insights. The Bay Area ranked No. 2, with its cryptocurrency startups and projects attracting $3.9 billion.
Sequoia plans to back cryptocurrency projects and startups ranging from early to late-stage ones, Bailhe, Maguire and Lin said in their post. The firm is looking beyond the often volatile short-term price swings of bitcoin, ether and digital currencies, Bailhe told Bloomberg.
"We're investing on a 30-year horizon," she said.
Besides price volatility, another concern of cryptocurrency investors has been growing regulatory scrutiny of the industry. For its part, Sequoia expects new regulations, Maquire told the Financial Times. But he urged regulators to strike a balance between giving room for innovation and protecting consumers.
By creating a dedicating cryptocurrency fund, Sequoia is responding to the desires of its own investors and founders in the sector, Lin told Axios. Both groups want the firm to be more active with such investments, rather than be a passive holder of them, he said.
"This fund will let us manage these tokens differently, from staking to voting rights and having a say on governance," Lin said.
Sequoia on Thursday also announced two other funds that will invest across a wide range of startups, including in cryptocurrency-related ones.
The firm is putting $950 million into a vehicle called the Ecosystem Fund that will invest in companies connected to Sequoia. Third-party investors known as "Scouts" will make investments from the fund on Sequoia's behalf. Sequoia is putting another $3.5 billion into a vehicle called the Expansion Fund that will invest in U.S. and European growth-stage companies.
