Algo Capital’s approach to holding Algos
History:
David Garcia and Arul Murugan have together invested in multiple blockchain projects since the beginning of 2018. Algorand is one of those projects and they are one of the largest investors and Early Backers of Algorand, having invested a total of $8 million in Algorand’s Series A through their previous entities (Algorand DG Group, Eleven Eleven Investments, Algo Node I), before founding Algo Capital Funds. As Early Backers, they run and manage 9 Algorand relay nodes.
With the vision to drive adoption, create the needed network effect in the Algorand ecosystem, and ultimately drive value to their original Algorand investment, Arul and David decided to start Algo Capital — a financial institution focused on building modern financial products to power Algorand’s borderless economy. The goal of Algo Capital is to accelerate the access, adoption, and liquidity of the Algo, the native digital currency of the Algorand blockchain. Note that Algo Capital is a completely separate entity from Algorand Inc. and Algorand Foundation. Algo Capital is founded and managed by David and Arul. As Managing Partners, David and Arul make all investment decisions and manage the investment portfolio.
Algo Capital right now manages two funds: Algo Capital VC fund (close-ended fund) and Algo Tracker fund (open-ended fund). Please read the below Medium post to learn more about the role of Algo Capital, investment thesis and the details about both of its funds: https://medium.com/algo-capital/the-role-of-algo-capital-b96b945da9dd.
This blog post will describe our approach to holding Algo and managing Algo liquidity from the Algo Capital VC fund for investing in portfolio companies.
Algo Capital VC Fund (Algo Capital Master Fund LP):
The Algo Capital VC fund is the flagship product that invests in companies leveraging Algorand technology to accelerate the adoption and create long-term value for Algo. Many of the existing Algorand investors backed this vision and are Limited Partners (Investors) in this fund. As General Partners of Algo Capital, David (DG Ventures) and Arul (Eleven Eleven Investments) invested a significant portion of their Algo rewards from the relay nodes they run in this fund. As a matter of fact, the General Partners of Algo Capital is the second-largest investor in the fund.
Liquidity of Algo’s and Investments into Portfolio Companies
How we get funded:
All commitments to the Algo Capital VC Fund were accepted in Algos rather than U.S. dollars and the Algo is the primary currency for all capital calls. We have done this with the goal of accelerating the use and acceptance of the Algo as a means of payment and also enabling the existing Algorand investors to contribute a portion of Algos earned from their relay nodes back to the growth of the ecosystem. To date, Algo Capital has received about 111,867,820 Algos from our Limited Partners. The remaining Algos committed from Limited Partners in the Algo Capital VC Fund will be contributed to the Fund through monthly capital calls, over an investment period that covers the next 2 to 5 years.
Our Algo HODL Strategy:
Algo Capital believes in creating long-term value for Algo through adoption. As part of its strategy, Algo Capital kept the initial 100M Algos it received from the Limited Partners as a unique asset to the fund and HODL for the next few years. This 100M Algos will be online, participate in securing the Algorand network and earn participation rewards. Holding 100M Algos as a unique asset of the fund is part of our investment thesis in the underlying Algorand blockchain itself. The remaining Algos will be used to invest in infrastructure and application layers built leveraging Algorand technology over the investment period of 2 to 5 years.
Note: Arul and David are long-term supporters of Algo and the Algorand network. They are HODLING most the Algos they earned except for those Algos contributed to the Algo Capital VC fund and any distribution for tax withholdings.
How we invest:
Besides our large holdings of Algo, we are also looking to invest in companies at different stages that are leveraging Algorand technology and/or participating in Algorand’s borderless economy. When we make investments into our portfolio companies, we invest about 90% of the capital in USD and about 10% in Algo, which allows portfolio companies to make use of the Algo within the Algorand network.
How we get liquidity to invest in portfolio companies:
Algo Capital needs significant capital in USD currency since we invest about 90% of the capital in USD into the portfolio companies. To prevent any selling pressure on the Algo during the early stages of Algorand’s network launch, Algo Capital chose not to sell its Algos from the Algo Capital VC Fund, and instead took a USD loan using Algos as collateral. That loan agreement, brokered through a partnership with Genesis Capital, provided the capital needed to invest in the initial portfolio companies. To date, Algo Capital has borrowed only 50% of the total USD loan amount. For future investments, Algo Capital will seek additional loans from its existing agreement with Genesis or sell a portion of the Algos received from the new capital calls. In any case, Algo Capital is not looking to sell the initial 100M Algos it is holding as a unique asset.
Statement on our Algo holdings:
As we stated above, the Algo Capital VC fund has not sold its Algos and is holding almost all the Algos received from the capital call safely in cold storage with Coinbase Custody. The below link provides the statement of Algo Capital VC Fund and Algo Tracker Fund Algos balance from Coinbase Custody and also attestation from our fund administrator, Trident Trust.
# of Algos held in the Algo Capital VC fund and the Algo Tracker Fund:
- Coinbase Custody Audit Confirmation Letter:
https://drive.google.com/file/d/0B0-scCxnfThWSS1ubTZUb2xIdzBDT2Ixb25HODA3bkIya3hZ/ - Trident Trust Attestation Letter of total Algos held by Algo Capital VC Fund and Algo Tracker Fund:
https://drive.google.com/file/d/0B0-scCxnfThWNzFhVUkwSHU0MWVSc1BmY2FzLWRBY3Foa1Nv
Note: We are declaring that we are holding 100% of the Algos we bought in the Algorand Foundation auction of June 2019 through the Algo Tracker Fund as well. We have not opted to collect early refund offered by Algorand Foundation, rather deciding to hold and devote 100% of the Algos in the Tracker Fund toward the super staking program.
Conclusion:
Even though Algo Capital is a private fund, we felt it was important to publicly disclose our Algo holdings and clarify how we secure USD liquidity to support our portfolio investments. We’re doing this for several reasons:
- Algo Capital is one of the largest holders of Algo, and we believe it is important to be clear how we are using those Algos and why we are committed to a HODL strategy
- We are committed to the values of transparency and openness that are the foundations of the overall Algorand community
Overall, Algo Capital is committed to holding our initial 100M Algos over the long term and, at the same time, we are very committed to investing in category-leading companies that are building on Algorand and driving adoption in the network. We strongly believe this strategy will create a significant network effect and ultimately bring more value to the Algo, our portfolio companies and the overall Algorand ecosystem.
It’s important to our General Partners that Algo Capital is a collaborative and positive contributor to the Algorand community. We see exciting work being done in this space every day, and we want to ensure that we are proactively transparent about what we’re doing to grow the community, and consistently supportive of the top projects who are driving Algorand’s network to new heights.
David Garcia & Arul Murugan
Founders and Managing Partners
Algo Capital GP LLC
Disclaimer: Algo Capital is not related to or affiliated with Algorand Inc, Algorand LLC, Algorand Foundation, or any of their subsidiaries. The views, opinions, and communications of Algo Capital are generated independently by the General Partners of Algo Capital, and are not endorsed or approved in any way by Algorand Inc, Algorand LLC, Algorand Foundation, or any of their subsidiaries or affiliates
