Our Investment Thesis
Historically, new models of computing have tended to emerge every 10–15 years: mainframes in the 60s, PCs in the late 70s, the internet in the early 90s, and smartphones in the late 2000s. Each computing model enabled new classes of applications that built on the unique strengths of the platform. For example, smartphones were the first truly personal computers with built-in sensors like GPS and high-resolution cameras. Applications like Instagram, Snapchat, and Uber/Lyft took advantage of these unique capabilities and are now used by billions of people.
Blockchain computers were first proposed in 2008 by Satoshi Nakamoto in the Bitcoin whitepaper. Those original ideas have since been dramatically expanded by developers and researchers around the world. Blockchain computers are new types of computers where the unique capability is trust between users, developers, and the platform itself. This trust emerges from the mathematical and game-theoretic properties of the system, without depending on the trustworthiness of individual network participants.
Although the Bitcoin whitepaper is now more than 10 years old, we believe we are still early in the crypto movement. Crypto is purely a software movement and doesn’t depend on a hardware buildout, in contrast to, say, the internet, which required laying cables and building cell towers. Second, the space is developing extremely rapidly, partly because the code, data, and knowledge is largely open source, and partly because of the increasing inflow of talent.
Finally, we are optimistic because we are deep believers in the power of software. Software is simply the encoding of human thought, and as such has an almost unbounded design space. We find ourselves consistently surprised and excited by the wide variety of creative crypto ideas we encounter. For those of us who have been involved in software for a long time, it feels like the early days of the internet, web 2.0, or smartphones all over again.
Here are some of the areas we’re excited about:
Next Generation Payments
The payments system we use today was designed more than a half-century ago, and the way we transfer and distribute value has lots of room for improvement. Transferring actual value quickly and cheaply without a third party, in much the same way we currently transfer data like emails or photos, will soon be technologically possible at scale.
Payment blockchains are picking up where Bitcoin left off, solving for currency volatility and settlement transaction times. In contrast to services like Venmo or PayPal where a digital IOU is sent in place of actual money, here the recipient possesses the actual value without third-party dependencies once you click “send.” Cryptocurrencies are like cash in this way: the bits and bytes are themselves the bearer instrument. Unlike existing systems where the sender and receiver must have fee-extracting bank infrastructure in place, payment blockchains require no bank account, thereby opening up financial services to the two billion-plus unbanked worldwide.
And for the rest of us who use legacy payment options like banks and credit cards that are “good enough,” new systems could provide a much needed upgrade, significantly reducing friction (unnecessary fees, call centers, faxes, delays, privacy breaches, and generally antiquated processes) and providing a more delightful and modern user experience. Turning money into pure bits also allows software developers to creatively design new services around money the way they have done with photos and text. Payment blockchains could end up doing to banks what email did to the post office and what VoIP services did to long-distance carriers.
Modern Store of Value
Consumers, particularly digitally native users and those in places where the currency isn’t stable, want a modern store of value that is scarce, secure, durable, portable, and censorship-resistant. Even those of us in stable economies are increasingly skeptical of the government’s ability to manage the money supply. Gold has long played the role of a fiat substitute, but Bitcoin is a digital alternative that is gaining acceptance and adoption around the world.
DeFi is a new stack of financial services –– think lending, derivatives, insurance, trading, crowdfunding, and more –– built on top of blockchains that embraces the core values of the open internet, including 1) open access to anyone in the world; 2) commitment to open source code; 3) permissionless extensibility by third-party developers; 4) minimal-to-no fees; and 5) encryption-backed security and privacy.
DeFi has been rapidly adopted by early users and developers. Users have deployed hundreds of millions of dollars in leading DeFi protocols, while developers have embraced DeFi’s open and rich design space. One of the main forces that has driven the rise of open-source software is composability –– the ability to remix and recombine software components. With programmable trust, scarcity, and value as new building blocks, DeFi opens the components of finance to the same recombination and experimentation that makes open-source software so powerful.
New Ways for Creators to Monetize
Over the internet’s history, many new business models have been invented, including banner ads, search ads, video ads, in-app payments, and digital subscriptions. Each new business model helped fund a new set of digital services and a new source of income for creators.
We think the next wave of internet business models will come from crypto. Rather than engaging audiences through centralized gatekeepers that charge high rents and create self-serving rules, creators can use token models that bypass gatekeepers and give their fans a direct stake in their success.
Today the video game industry is on the leading edge of this trend, experimenting with things like digital goods that can be traded on secondary markets and transferred between games. In the near future, we expect crypto monetization models to be applied to other creative activities –– including writing, music, podcasting, programming, design, and more.
One of the key reasons the internet is such a powerful invention is that, because it is primarily software-based, new networks can be created on top of it. Originally this meant networks based on open protocols like email and the web. More recently this has meant corporate-owned networks like Facebook, Twitter, and Uber.
Companies that own networks have unilateral power over important questions like who gets network access, how revenue is divided up, what features are supported, how user data is secured, and so on. This creates tension as corporate interests often diverge from the interests of those who depend on the network, including users, developers, businesses, and creators.
Blockchains enable the creation of decentralized networks that make strong commitments –– baked into the architecture of the network itself –– as to how control and money will be distributed among network participants. “Don’t be evil” is replaced by “can’t be evil.” An early example of this are storage networks where the economics are shared across the community, and deplatforming decisions are made by community members instead of corporate committees.
We are still early in this Web 3 build-out. High-performance programmable blockchains will make decentralized network development much more accessible. After years of R&D, we are excited that a number of next-gen programmable blockchains will begin rolling out in the near future.
These are a few areas where people are already building, but it only scratches the surface of the yet-to-be-imagined applications that entrepreneurs will dream up. In the same way that it wasn’t obvious in 2007 how applications on top of mobile phones would change so many aspects of the ways in which we move, consume, travel, communicate, and even date, it’s hard to imagine what the very best apps and use cases will be for blockchain-based computing platforms.
The a16z crypto funds
a16z has $865M under management across two funds, investing in crypto companies and protocols. Our funds are designed to include the best features of traditional venture capital, updated to the modern crypto world:
- We are long-term, patient investors. As a firm, we've been investing in crypto assets since 2013. a16z Crypto is a venture fund, structured to be able to hold investments for 10+ years.
- We have “all weather” funds. We plan to invest consistently over time, regardless of market conditions. The history of crypto shows that asset prices may fluctuate but innovation continues to increase through those cycles.
- We provide operational support to entrepreneurs. Our crypto investments have access to a dedicated a16z crypto operating team as well as the firm’s full team. Our operating teams have deep expertise in executive and technical recruiting, regulatory affairs, communications and marketing, and general startup management. We are responsible participants in the governance of companies and the governance of networks.
- We are flexible with respect to stage, asset type, and geography. We invest at all stages, from early stage projects to fully developed later-stage networks like Bitcoin and Ethereum. We’ll invest in traditional financial instruments like equity or convertible notes, and new instruments including the direct purchase of coins/tokens. Crypto is a global phenomenon, with great projects all around the world, and we’ll invest accordingly.
- We are focused on non-speculative use cases. We want services powered by crypto protocols to be used by hundreds of millions and eventually billions of people. Crypto tokens are the native asset class of digital networks, but their value is driven by the underlying, practical uses cases.
In just a decade of existence, crypto has gone through several waves. With each new wave, the applications of crypto extend to a greater number of categories and more visionary entrepreneurs enter the space. If you’re one of them, we’d love to hear from you.
Any investments or portfolio companies mentioned, referred to, or described on this page are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. Exits include current and former a16z portfolio companies which have been acquired as well as companies which have undergone an initial public offering or direct public offering of shares. Certain publicly traded companies on this list may still be held in Andreessen Horowitz funds. A list of investments made by funds managed by a16z is available here: https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Further, the list of investments is updated monthly and as such may not reflect most recent a16z investments. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results.
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