With a $150 Million Venture Fund, BlockTower is Ready to Capitalize on Crypto Winter

With a $150 Million Venture Fund, BlockTower is Ready to Capitalize on Crypto Winter

In the bustling venture capital scene, cryptocurrency investors have emerged as some of the most serious about branding their business. They have written white papers and launched podcasts. On social media, partners in multi-billion dollar companies have become petty celebrities inside the crypto bubble, sharing predictions and memoirs to their legions of followers.

Blocktower Capital, a new venture exercise led by investor Thomas Klukanas, is opting for a different approach. The previously $150 million BlockTower fund was part of a larger hedge fund and fiduciary business, which barely has a website. Her Twitter account, despite her ten thousand followers, has yet to tweet.

Instead, Miami-based BlockTower and Klocanas, the flagship of its Brooklyn-based investment arm, are looking to forge moderation — and old financial relationships — their calling cards. By keeping its fund relatively tidy at $150 million, BlockTower is looking to invest at a fast pace (10 investments so far this year) and check volume ($500,000 to $5 million, with $20 million posted so far) that will help it retain alone. Along with its peers from the well-known and fastest mega chests. As one of four cars within BlockTower, a crypto-focused financial company with a major hedge fund, market-neutral fund and lending business, the 31-year-old Klucanas says he can offer startups something a bigger company can’t: real power users in finance. A crypto-focused institutional that can help create markets and provide assets for lenders to launch.

“We live and breathe the things we invest in, or else who are we to give them advice,” says Clokanas. “We want to be led by actions, and we hope our actions speak for themselves.”

The French-American Klocanas cut his investment banking teeth as a sell-side analyst in London before attending Columbia Business School, where he was the co-chair of its student organization in fintech and blockchain. While earning his MBA, he started working for crypto software maker and local incubator ConsenSys in 2017, helping launch new ventures and performing several business development roles. After brief stints in several other crypto ventures, he joined Whitestar Capital VC in January 2020 as an administrator, helping to raise the first digital asset fund, a vehicle that backed startups including Ledn, Paraswap and Rally, worth $50 million.

At the end of 2021, with cryptocurrencies soaring and surging in price, Clokanas was considering raising his own money when he met Matthew Goetz and Ari Paul, both 38. Goetz, a former investment banker at Goldman Sachs, and Paul, a former university endowment manager In Chicago, they launched their hedge fund, BlockTower, in 2017, to focus on crypto investments in a way they felt traditional institutions couldn’t. Besides a main fund that can make long-term investments in the public and private markets and in the cryptocurrency itself, they added a market-neutral fund, as well as developing a trust business. A file from the end of 2021 recorded the company with assets of nearly a billion dollars; At today’s prices, it has more than $500 million.

By collaborating with Klocanas, Goetz and Paul saw an opportunity to delve deeper into the private side of investing, as the company has already made more than 40 investments on its own. Presentation: BlockTower can combine the expertise and financial leverage of its traders with Klocanas’ deep domain expertise on the startup side. “You can’t fake being a crypto citizen,” Goetz said. Forbes in July. “The DNA of winning project franchises today is different from the Sand Hill Road game of the last 40 years.”

The trio proceeded to raise $100 million, eventually capping their fund at $150 million early this year. Backers include MassMutual, French investment bank Bpifrance, former Midas List investor Roger Ehrenberg, and the Texas Teachers’ Retirement System. While other companies have invested hundreds of millions in a shorter period of six months, Claucanas claimed, Blocktower has made only 10 investments so far this year, investing $20 million. The company is looking to write checks worth between $500,000 and $5 million that it can drive or share in early-stage businesses and crypto projects, aiming for equity stakes of up to 10% in a startup, or up to 5% of the token protocol.

BlockTower often targets financially minded crypto projects that focus on interoperability between blockchains, credit or payments. But the company has also written checks to “digital asset neighbors” companies in mobile, social media, decentralized governance and the future of business, which, while lacking a crypto-focused product today, may use crypto as an essential part of their business in the future, he said. Clokanas.

Investments include Lighthouse, a potential metaverse search engine the company co-led in a $7 million funding round with Accel in May, and Aptos, a startup founded by former Meta employees trying to take the torch from parent Facebook. Blockchain project for an abandoned company.

But BlockTower’s value is more evident with early stage companies like Maple Finance, a startup that helps companies lend and lend capital to other cryptocurrency projects. There, BlockTower’s lending experts provided the knowledge and capital to create one of Maple’s first lending groups.

In May, BlockTower announced a $3 million token sale and a strategic partnership with another startup looking to connect real-world assets to these liquidity pools, Centrifuge. This alliance is more valuable than the venture money itself, says Lucas Vogelsang, CEO of Centrifuge. “It brings all of this technology that we’re building closer to their network, service providers and users,” he said. “This is the most exciting part.”

Several venture capital peers said that BlockTower’s ability to provide resources to such projects, not only as an equity investor, but as an early institutional user, could play an important role in the ecosystem. Forbes. Said a prominent investor interested in cryptocurrency, who asked not to be named because he is not authorized to speak to the press.

At Hack VC, an infrastructure- and DeFi-focused crypto firm that launched last year, co-founder and managing partner Alexander Buck said “cross-overs” with hedge fund arms have their trade-offs, pointing to turmoil at Tiger Global and Coatue elsewhere. In investing in a startup. But Buck was cautiously optimistic about cryptocurrency. “If BlockTower can leverage its hedge fund to provide on-chain liquidity for its seed portfolio, it can smooth out network effects and help its portfolio outperform competitors,” he said.

Another factor in BlockTower’s favor could be its timing. Clokanas and his fund hit the market just as the cryptocurrency plunged into a “crypto winter” that included plummeting cryptocurrency prices and a significant drop in risk dollars. Companies invested $4.4 billion in the third quarter of 2022, according to startup investment tracking PitchBook, down from $7.6 billion and $10.9 billion in previous quarters, and down nearly 50% from a year earlier.

The sector that is struggling is unlikely to be a good thing for BlockTower’s flagship hedge fund. But with a small and young portfolio, BlockTower is facing little pressure to deliver instant returns. Meanwhile, its investment pace means it still has most of its money to spread as buying prices drop and other investors pause their activity in this category.

Since it has never publicly bought into the hype of investors who are publicly posting about owning “diamond hands” or “laser eyes,” two memes associated with buying and holding cryptocurrency, BlockTower faces no backlash from investors who may be more critical of companies that seemed like that. Encourage the past cycle of speculative activity. When asked if he considers himself “degenerate,” short for “decadent,” a common term attributed to himself for true believers in cryptocurrency, Cloukanas said, “I will say that I am simultaneously a crypto-pragmatist and a “decadent.” I believe in both visions, side by side. side by side, on different time frames.”

While projects like Helium face partial delisting and others, like Celsius Network, have gone bankrupt, Klocanas pointed to NFT affiliate Sorare, whose CEO tweeted in late September stressing that dollar volume, turnover and number of unique buyers will all remain. On the rise from January, as a counter example. He said that the days of fast returns on investment in cryptocurrency by 100x are over. But he added that BlockTower is pleased that the crypto startup’s exits look more like typical returns on venture capital. “There are a lot of cryptocurrencies out there trading prices.”

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