As the cryptocurrency market continues to slump during a fundraising winter, Faction Ventures, a blockchain-focused venture capital firm, is betting big on the space. The company has raised $285 million in seed funding, its co-founders exclusively told TechCrunch.
Faction will focus primarily on early-stage blockchain projects raising seed or Series A rounds. Prior to the public offering, the fund had invested about 20% of its capital in a handful of projects, said Samuel Harrison, managing partner at Faction. The development period will be on a timeline of about three years, but may vary depending on the investment environment, said Banafsheh Fathieh, the firm’s general partner.
“On the maturity arc, most of what you see in the development stage is talking about crypto as an asset class. It’s a lot of trading use cases or capturing the ethos of “this could be an emerging asset class”. But encryption, as a technology trend, is relatively new,” Fathieh said. “The early stage is where we see the biggest opportunities.”
The fund originally planned to raise $250 million, but ended up with 14% more than its goal. “We felt that $250 million to $350 million made sense,” Harrison said.
He added that the fund’s LPs are mostly institutional investors and some strategic investors. They also raised a small portion of the capital from family offices and friends.
“We wanted to make sure we were always flexible with capital,” Fathieh said. “When fund sizes go down, it’s hard to step in as a union or a leader.”
The firm wants to be big enough to lead early rounds and early Series As, while also “essentially having full control when it comes to working with companies” to help them scale and be a valuable partner, said Harrison. “If we went smaller than that, it’s hard to do because then you don’t have the dry powder to back those companies, especially the high-profile ones with the biggest capital needs.”
“It’s big enough to matter,” Harrison added. “But also not so big that it’s difficult to grow.”
Fathieh said the firm does not have “a hard and fast rule on check size or ownership” and added that it invests in either brands or stocks. Its average check size is in a “sweet spot” of about $5 million to $10 million, which typically gives the company a prime position as a lead investor, Harrison said.
The company is run by people who previously worked at crypto companies like Coinbase, Blockchain.com, and Amber Group, among other entities. It’s also in a “hybrid structure” joint venture with Lightspeed Venture Partners so it can leverage the venture firm’s platform, Harrison said.
Both Fathieh and Harrison see the current crypto market conditions as a perfect environment for growth.
“It’s clearly a time where a lot of general funds have left the space,” Harrison said. “We’ve invested in a couple of rounds, so it’s a good time to invest. It’s better than when the market is super hot… That’s when we want to be more active while others are questioning it.”
Although the cryptocurrency market has fallen from all-time highs, Fathieh said they want to focus on the long term. “Markets go up and down. We look at it for 20 seconds of our day, but the underlying fundamental belief is there, and there’s an open door here.”
Harrison believes it has nothing to do with market timing because the investments they make are “a 10-year thing, not a one-to-two-year thing.”
“If next year is bad, we’ll continue to invest, continue to grow and do what we’re doing with a 10-year time horizon,” he said.
