Accolade Partners Launches a Blockchain Fund of Funds
Accolade Partners is a leading alternative investment firm dedicated to delivering superior returns by investing in top-tier venture capital and growth equity funds on behalf of endowments, foundations, institutions and individuals. Founded in 2000 and located in Washington, D.C., the Firm has raised $1.6 billion of capital and is a registered investment advisor. For more information, please visit www.accoladepartners.com.
Why is Accolade excited about the opportunity in Blockchain?
Since the Firm’s inception two decades ago, Accolade has been a leader in identifying many of the most important technology trends and investing against those opportunities. Our funds have benefitted from selecting managers focused on SaaS, social media, mobile, fintech, cloud computing, artificial intelligence, healthcare IT, among others.
Today, we are particularly excited about the opportunity in blockchain technology. In our opinion, blockchain adoption mirrors that of the Internet in the early ’90s or mobile in ’08. Blockchain-enabled use cases are showing traction and there continues to be an influx of developer talent. We view the ecosystem across three dimensions — protocols, applications and supporting infrastructure.
Protocols are the base layers of blockchain development akin to internet protocols such as HTTP or IP. They serve as the foundational building blocks on which token-based projects launch and conduct transactions. Protocols such as Ethereum have a larger developer community than Linux or Apache[1]. It’s important to note that for HTTP or IP, the value exchange was not programmed into their protocols, so value only accrued at the application layer in companies such as Google or Facebook. In contrast, blockchain protocols allow for value exchange to remain on the platform, which allows value to accrue at both the protocol and the application layers.
End-user facing blockchain applications have also begun to gain significant traction. Maker, a decentralized peer-to-peer lending platform built on top of Ethereum, has originated over $500 million in loans. Figure, a blockchain-based financial solutions platform intended for home improvement, debt consolidation and retirement planning, has originated over $700 million in loans. Brave, an open source web browser combining privacy and rewards, has over 12 million monthly active users.
Finally, infrastructure companies can serve as on-off ramps into the crypto ecosystem comprising exchanges, brokerages, custodial services, wallets or other structural building blocks. Coinbase, Bakkt, and Fidelity Digital Assets are evidence of the strong adoption and demand for digital assets. Coinbase, a digital currency exchange, has facilitated over $150 billion in trades across 30 million users. Bakkt, an Intercontinental Exchange (NYSE: ICE) backed firm, launched the first regulated Bitcoin options and cash-settled futures contract in the US and Fidelity announced the launch of Fidelity Digital Assets, offering enterprise-grade crypto custody and trade-execution services for hedge funds, family offices, and financial advisors.
Blockchain venture capital landscape
Three years ago, Accolade launched a dedicated effort to survey and meet the blockchain manager universe. During this process, we developed relationships with the leading firms in the space. We conducted exhaustive diligence and ultimately made our first dedicated blockchain commitment in 2018 to Andreessen Horowitz Crypto Fund I. Since then, the market of institutional blockchain venture capital managers has expanded significantly. We are currently tracking over 70 managers that fit our criteria, with many of those firms founded in the past two to three years.
The blockchain manager universe today reminds us of the venture manager universe in the late ’80s or early ’90s. If a fund of funds had constructed a portfolio of the best names of that era, it would have backed the early funds of Sequoia, Benchmark or Kleiner Perkins. We believe the current dynamic in blockchain is particularly well suited for an institutional fund of funds and we are excited to launch Accolade Blockchain.
Why does a Fund of Funds make sense in Blockchain?
Given the nascent nature of the asset class, it is difficult to (i) gain holistic exposure through a single blockchain fund commitment and (ii) pick one manager over another given the lack of track record. Rather, a diversified approach across strategy (protocols, applications, infrastructure), vintage and geography allows investors to gain effective exposure to the asset class while mitigating single manager risk.
Accolade has refined its process for underwriting venture managers over 20 years. The quality of our due diligence, manager selection and portfolio construction has resulted in Accolade being ranked the #1 Fund of Funds[2]. We will apply the same level of rigor to our Blockchain Fund of Funds and will lean on many of the same frameworks that have led us to be successful.
What does Accolade Blockchain look for in managers?
Our fund is focused exclusively on managers who take a long-term venture approach to the asset class. While there is a place for active trading strategies, index funds or tokenized funds, our expertise lies in identifying and underwriting venture capital funds. In terms of fund structures, we understand that structural flexibility is critical for managers so we will consider both open-end and closed-end funds, as long as they take a long-term approach to investing.
More specifically, we are looking for teams that have (i) the ability to conduct in depth technical due diligence and actively participate in crypto networks (ii) deep institutional investment track records and (iii) blockchain specific operating experience. The teams we are considering have deep technical experience in cryptography and distributed systems, successful track records from established firms and have worked or co-founded leading blockchain companies. These teams have a proven ability to access the best deals at early stages, are well respected by entrepreneurs, exhibit strong portfolio construction, and have best-in-class back-office and supporting teams to add value and participate in network governance.
Recently, Accolade Blockchain committed to Andreessen Horowitz Crypto II, Polychain Ventures II and Polychain Crypto. We are excited about our partnership with both firms.
Final Thoughts
We believe investing in a diversified portfolio of top tier blockchain funds with a long-term view is an effective way to get exposure to the future of the internet and affords significant upside potential. We look forward to sharing more updates on our Blockchain Fund of Funds in the near future.
