Accolade Blockchain II
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 $3.0 billion of capital and is a registered investment advisor. For more information, please visit www.accoladepartners.com.
OVERVIEW
In early 2020, we announced our first blockchain venture fund of funds. Our goal was simple — identify and invest in the best early-stage blockchain VCs. We believed blockchain represented a paradigm shift in computing similar to the Internet in the early ’90s or mobile in ’08. We also recognized the need for an institutional fund of funds to build a diversified portfolio.
Fast forward to today and we have executed on that vision. We raised $124 million for Accolade Blockchain I, making us one of the largest institutional allocators in the blockchain asset class. We built an incredible roster of managers including 1kx, Acrylic, Andreessen Horowitz, Electric, Framework, ParaFi, Polychain, Standard Crypto, Sybil, and Variant. While early, Blockchain I is off to a great start. Our managers have backed leading companies across categories, including Uniswap, Compound, Coinbase, Dapper Labs, and many more.
To build on that success, we are announcing the launch of Accolade Blockchain II.
BLOCKCHAIN MARKET UPDATE
A lot has happened since we announced Fund I. We witnessed the emergence and growth of categories such as decentralized finance (DeFi) and non-fungible tokens (NFTs), institutional acceptance of crypto assets, maturation of blockchain infrastructure, and the embrace by regulators to put forward thoughtful laws and guidelines.
DeFi applications in areas such as exchanges, lending/borrowing, derivatives, insurance, and asset management have seen significant transaction volume and user adoption. When we announced Accolade Blockchain I, total value locked (“TVL”) in DeFi protocols was ~$900 million, today the TVL has surpassed $80 billion. Alongside the growth of TVL, we have seen a steady increase in revenues across most applications.
Due to improvements in developer tooling and infrastructure, it has never been easier and cheaper to launch a decentralized application. Consider Uniswap, a decentralized exchange, which launched merely two years ago with a team of less than 10 people and $11 million of private VC funding. Uniswap is now generating $1 billion of monthly revenue with access to global liquidity 24/7. Uniswap is a great example of how low the barriers to launching a financial application have become. DeFi is disintermediating global finance by enabling capital to move at the speed of information.
Another trend we have witnessed is the adoption of non-fungible tokens (NFTs). NFTs are blockchain-based records that uniquely represent digital assets. The asset can be anything digital, including art, videos, music, gifts, games, text, memes, and code. Q2 2021 saw NFT sales in excess of $2.5 billion. As with other categories, NFTs are going through a period of creative destruction as developers and investors explore new use cases for the technology.
With respect to institutional adoption, over $40 billion in digital assets are now held in corporate treasuries. BNY Mellon, the world’s largest custodian bank with some $41 trillion in assets, will be rolling out a new digital custody unit for its clients. Goldman recently announced plans to offer options and futures trading in Ethereum. Paul Tudor Jones announced and reiterated his exposure to Bitcoin as a portfolio diversifier. State Street, a US custody bank that oversees more than $40 trillion in assets, is setting up a new digital asset division. Visa announced it would allow settlement of transactions on Ethereum. There are countless other examples of institutional adoption and as with the internet, we believe this adoption will compound on itself for decades to come.
A key driver of this adoption has been the growth and improvement of infrastructure companies. These companies serve as the on/off ramps into the crypto ecosystem comprising exchanges, brokerages, custodial services, wallets, or other structural building blocks. In one of the most highly anticipated IPOs of 2021, Coinbase (COIN) went public via a direct listing on April 14th. Circle announced an API for companies to access decentralized finance protocols. BlockFi announced an institutional investor platform. Chainalysis, a data platform offering compliance and risk management tools to governments and financial institutions, closed a $100 million Series E financing led by Coatue. CipherTrace, a business that tracks crypto crimes, closed a $27 million Series B led by Dan Loeb’s Third Point. These platforms enable institutions to get off the sidelines and participate in the asset class.
Lastly, we continue to see a trend towards regulatory acceptance, albeit this path is not always a straight one. In July of 2020, the Office of the Comptroller of the Currency (OCC) announced that federally charted banks may provide custody services for clients. Earlier this year, SEC commissioner Hester Peirce noted her support for DeFi. Recently, representatives from the Commodity Futures Trading Commission (CFTC) and SEC attended an event to discuss the regulatory framework for DeFi. On balance, it seems regulators are taking steps towards more precise guidelines on how crypto businesses can operate legally and fairly.
MANAGER LANDSCAPE
Three years ago, we launched a dedicated effort to survey and meet the blockchain venture manager universe. At the time, there were less than 20 managers that fit our criteria. Today, we are tracking over 160 blockchain venture firms, with many of those firms founded within the past one to two years.
We expect this trend to continue as traditional investors wake up to the opportunity set and crypto-native founders make the transition to investing. We believe a fund of funds is an effective way to get exposure to the asset class, as more funds enter the market and make it difficult to take single manager risk in a nascent asset class. Moreover, many of the earliest funds we backed are now oversubscribed and closed to new investors.
ACCOLADE BLOCKCHAIN II
Our focus is on managers who take a long-term approach to the asset class. While we believe there is a place for active trading strategies, our expertise lies in identifying and underwriting venture capital funds.
Though the teams we backed in Accolade Blockchain I were varied in nature, they shared a few common characteristics. Namely, strong track records, the ability to conduct technical due diligence and actively participate on-chain, blockchain-specific operating experience, and strong networks in the entrepreneur and investor communities.
Beyond that, our intent was to construct a diversified portfolio. This included sector specialists such as ParaFi and Framework, who focus exclusively on DeFi. It also included generalists such as Andreessen, Electric, Polychain, and Standard Crypto.
We invested across geographies, backing firms such as 1kx in Europe; and across stages, backing firms such as Acrylic and Variant, who invest at the pre-seed and seed stage.
As we look towards our second blockchain fund of funds, we hope to build on this success by continuing to partner with the best investors in the space.
CONTACT
If you are raising a new fund or we have not yet connected, please get in touch!
