TL;DR

• By visualizing the network between 2022 Crypto VCs, 5 noteworthy groups were identified centered around Alameda Research, Animoca Brands, Coinbase Ventures, Shima Capital, and Algorand, each with their own characteristics.

• In 2022 Group A moved the largest amount of funds, centered around Alameda Research.

• In 2021, APAC-based VCs created a single group centered on AU21 Capital, and in 2022 VCs based in the US, Hong Kong, and Singapore created multiple groups that were intricately entwined. This means cases of sharing information and deals between VCs are increasing, yet the bonds between VCs are particularly stronger when they are in the same country or geographically closer.

• Thus, the tendency of VC groups to form based on geographical location will influence the nationality of projects that receive investment, potentially creating the risk of geographical imbalance as the market develops.

Introduction

Which VC exhibits the best social network in the current crypto market?

Since analyzing past fundraising records, it is evident that most VCs enter an investment round with each other. By doing this, the receiving project is able to leverage the network and information of various fundraising VCs while efficiently raising investment.

Thus it became apparent that even among VCs, there are social networks used to share deals and various forms of information. By leveraging this network VCs can efficiently complete their due diligence and exchange investment opinions.

This article is based on the hypothesis that there will be especial relationships between particular VCs in which information is shared, and as these relationships grow different groups with specific characteristics will appear. Hence we can infer that there are VCs who play a pivotal role in each group and this article aims to highlight these core players.

Methodology Used for Analysis

In the following analysis, Fundraising data by Messari and Apriori algorithm from Agrawal and Srikant’s 1994 research paper were used to uncover the existing network between VCs.

The Apriori Algorithm, called the Association Rule Analysis, is an algorithm that generates rules indicating which two sets of items occur frequently. Widely known as the Market Basket Analysis in business administration, this methodology produces an algorithm that can draw conclusions such as “Customers who purchase item X are more likely to purchase item Y as well” based on consumer purchasing history. In this algorithm, support is a measure of how ‘frequently’ two items appear together, confidence is a measure of the likelihood that the association rule between the two items is a reliable rule and lastly, lift is the measure of whether the association rule of the two items is coincidental. Analysis results are interpreted mainly through these three indicators. This article intends to visualize networks based on the indicator of support, and thus identify any existing groups and their characteristics.

How to Interpret the Network Diagram

The network between VCs over the past three years (2020, 2021, 2022) has been reinterpreted into three visual diagrams below. In order to understand the three diagrams attached, one must first consider three keys.

1. The size of the circle joining two VCs The size of the circle is proportional to the level of support. In other words, a large circle signifies that the two mentioned VCs entered investment deals together frequently that year.

2. The color of the circle connecting the VCs The intensity of color in the circle represents the lift value. The darker the color of a circle, the stronger the relationship between the two VCs.

3. The number of lines connected to other VCs Multiple lines signify that the VC has participated in various investment deals with the connected VC.

2022 Network Diagram

2022-A Group: USA

• Group members: Alameda Research (centered), Solana Capital, Multicoin Capital, Dragonfly Capital, Animoca Brands, Coinbase Ventures

• With the exception of Animoca Brands, the above VC CEOs are American or headquartered in the US

• This group is estimated to run the largest investment budget and currently leading the investment market. This group is estimated to have participated in a total of 357 deals between January 1st, 2022 to August 5th (including overlaps).

• Relationship entwined via Investment

  • Alameda Research, Multicoin Capital → Investment in Solana (link)

  • Coinbase Ventures, Dragonfly Capital → Investment in Animoca Brands (link 1, link 2)

• This group has a relatively higher rate of investment in Web3 Infrastructure and DeFi-related projects compared to other groups.

2022-B Group: Hong Kong & Singapore

• Group members: Animoca Brands (centered), Spartan Group, Alameda Research, Double Peak, Dapper Labs, Polygon

• Headquarters of Animoca Brands, Alameda Research, Double Peak are all located in Hong Kong (Spartan Group in Singapore, Dapper Labs in Canada, Polygon in India)

• This group has shown a tendency to invest in projects mainly related to NFTs and Web3, showing profound interest in NFT, Gaming, Metaverse, and Web3 Tooling.

2022-C Group: Bay Area

• Group members: Coinbase Ventures (centered), Hashed, Dragonfly Capital, Pantera Capital

• With the exception of Hashed (based in South Korea), the above mentioned VCs are all based in San Francisco

2022-D Group: Algorand

• Group members: Meld Ventures, Borderless Capital, 0x Ventures, Algorand Foundation

• Although the size of this group is relatively small, the lift value between this group seems higher than in other groups. It can be inferred that this group has strong internal cohesion.

• Borderless Capital created a $500m Algorand Fund (link)

• Algorand found in Meld Ventures portfolio

• Algorand-related dApps found in 0xVentures portfolio (such as Algomint, Algopulse, etc)

• This group can be characterized by their tendency to only invest in projects classified as DeFi.

2022-E Group: Asian-American

• Group members: Shima Capital (centered), Gravity X Capital, Sfermion, LD Capital, Spartan Group

• Shima Capital’s headquarters are located in the United States, but five key executives including the CEO are Asian-American.

• LD Capital is a China-based VC, Spartan Group is a Singapore-based VC

• This group tends to evenly invest in projects of various natures, including DeFi, NFT, Gaming, Metaverse, Layer 2, Infrastructure and more.

2021 Network Diagram

2021-A: APAC

• Group members: AU21 Capital (centered), X21 Digital, LD Capital, NGC Ventures, Magnus Capital, ExNetwork Capital, Genblock Capital, Spark Digital Capital

• VC Founders or headquarters based in APAC

  • AU21 Capital: Asian-American Co-founders (Chinese)

  • X21 Digital: Singapore

  • LD Capital: China

  • NGC Ventures: Singapore

  • ExNetwork Capital: Philippines

  • Spark Digital Capital: Asian-America CEO (Chinese)

2020 Network Diagram

2020-A: USA

Group members: DCG (US), Coinbase Ventures (US), Polychain Capital (US), Multicoin Capital (US), Lemniscap (HK), CMT Digital (US), Pantera Capital (US), Commerz Ventures (Germany)

2020-B: Europe

Group members: AU21 Capital (US), Moonrock Capital (UK), NGC Ventures (Singapore), Woodstock Fund (UAE), Origin Capital (Ireland), Bitscale Capital (Switzerland), Caballeros Capital (N/A)

2020-C: Etc

Group members: Fairum Ventures, Vendetta Capital, VYSYN Capital

Coming to a Conclusion

Based on fundraising data from the past three years, in this article we examined the characteristics of VC groups. What was interesting was that VCs with geographically closer headquarters often formed a group. Meaning, that the closer the physical distance, the higher the chances were of social distances being much tighter. This is presumably because the probability of sharing similar culture, language, and time of activity is much higher.

As I write this article, a few questions come to mind. How should new VCs or founders receive investment when they are faced with the difficulty of accessing these main VC groups due to their geographical location? Is it fair to say that these projects VC groups invest in together are indeed good projects? Doesn’t the success rate of these projects increase significantly because these VC groups have entered investment together? The question of which is first, the chicken or the egg, remains unanswered here.

In the next article, let us examine whether a VCs’ physical distance is proportional to their social distance even in the projects they invest in. If such a trend can be observed, this means the party receiving investment and the party providing funds are grouped based on the country or on a larger scale, the language area. This means it is highly likely that FAANG of Web3 will be born again in the US.

Copyright 2022. nonce Classic. All Rights Reserved.
Edited by Yumi Hong, Translated by Esther Kim

TL;DR

• There will be more money flowing into crypto in the 2022 than the sum of investments of the past 5yrs combined. #stillearly

• There are 20 VCs who predicted the megatrends such as Defi, NFT, Web3

• VC tracking portfolios show higher returns compared to single portfolios with Bitcoin and Ethereum

• Projects in the categories below are worth drawing attention to:

1. Metaverse + something (e.g., Metaverse Fashion brands, AR/VR services, Metaverse Avatars, etc)

2. Game/DAO/NFT + Financial (Defi services from those that provide basic functions such as lending/swaps/providing liquidity to more interesting Defi services that provide specialized functions. e.g., Loans for Gamers/Guilds, NFT-backed lending protocol, etc)

3. Asset management

4. Social Communities based on Solana (e.g., Fans, Sports, Music, etc)

Opening Word

Defi, NFT, Web3, Gaming, Metaverse, DAO… Even just at the top of my head, these are the megatrends that have blown the crypto scene away. As a matter of fact, all these trends arose over the past 3yrs, meaning at least two megatrends occurred every year.

To read trends in a market like this cannot be easy. Needless to say, it’s that much harder for private investors who are investing after their working hours. Then inevitably, whether it’s the next hot trend in the scene or promising projects, we hear about them after they’ve become well-known. Can there be no solution to this?

A solution suggested by yours truly: Follow successful VCs

What if there was an organization that caught onto trends one step faster than anyone else? And what if we could look into each and every one of their investment portfolios? Although we may not be able to imitate them perfectly, it is certain that there is a profound insight to be gained through VC portfolios.

VC has the following advantages compared to retail.

1. VC own a dedicated, high-level research team.

2. VC are at an advantage with information thanks to their network scattered throughout the industry

3. 24/7 constant exposure to crypto allows them to react promptly

Mason Nystrom, senior research analyst at Messari said the following regarding his research.

”Examining the portfolios of successful investors in the space can help anyone glean insights into what may be the next big trend.”

Data used for Analysis

The following analysis was conducted using funding data provided by Dove metrics. Data has been organized in the form of a data frame as seen above, and each item of data used in the analysis has been specified below.

• Period: 2017.3.29 ~ 2022.02.28 (Approx. 5yrs)

• Observations: Roughly 2250 papers on investment data

• Date: From the publishing date of the article announcing execution of investment

• Investors: Investment companies made up of VC, DAO, Influencers (e.g., Peter Thiel, Naval Ravikant, etc)

• Lead Investor: Investor who led the investment round

The analysis conducted in this article is as follows.

1. Analysis of yearly VC investments

2. Analysis of VCs who predicted the trend

3. Profitability of portfolios made through VC tracking

4. Prediction of the next trend through VC portfolios

Now, let us take a close look into each one.

Analysis 1. The total sum of investments will reach an ATH in 2022.

• The graph below is a visual representation of yearly investments from 2017 to 2022. (For 2022, only investments from January and February are included)

• The total amount of investment in 2021 was $30.5B, roughly an 880% increase compared to the previous year

• In 2022 the total sum of investments in January and February alone exceeded $10B. This can be compared to the crypto market, represented by Bitcoin, which peaked in November last year and has since been going through a rough patch. Assuming this flow of investment will maintain itself until the end of the year, the total amount of investment in 2022 is expected to be around $60B, which is a 200% increase from the previous year.

• Take a look at the two graphs below. Even though bitcoin prices have been on the decline since November 2021, the total monthly VC investments have been increasing over the same time period.

For the two reasons outlined above, I predict the money flowing into crypto in 2022 will add up to be greater than all the investments for the past 5 years combined

1. Investments made in 2022 January and February alone, already exceed 30% of the total investment in 2021

2. Although Bitcoin prices have been on a downward trend since its peak in November, the monthly investment amount is on the rise

Analysis 2. 20 VCs who predicted the trend one step faster

• The graph below shows the ratio of investments in projects by category. Through this we can see which sectors received more attention over time.

Before 2020: Building infrastructure (CeFi, Infrastructure)

After 2020: Building projects on the established infrastructure (DeFi, NFTs, Web3)

So then, let us identify the VC who accurately predicted the three mega-trends; DeFi, NFTs, Web3 after 2020

DeFi

• The third quarter of 2020 was called the “Defi Summer” where Defi projects received tremendous attention. The number of investments in Defi projects increased 800% in the 3rd quarter of 2020 compared to the 2nd quarter of 2020.

• VC that invested in Defi before the winds of Defi Summer blew in the 2nd quarter of 2020, in other words, the VC who predicted the Defi to be the trend in advance, are listed below,

Multicoin Capital, Morgan Creek Digital, Meyer Equity, Paradigm, IOSG Ventures, Version One Ventures, SBI Financial Services

NFTs

• The 4th quarter of 2021 was called the “NFT Winter” where many NFT projects received spotlighted attention. The number of investments in NFT projects increased 245% in the 4th quarter of 2021 compared to the 3rd quarter of 2021.

• We must note that investments in NFT projects among VC already surged in the 1st quarter of 2021, about nine months before the NFT winter began.

• The VC that invested in NFT projects right before the first trend began in the 4th quarter of 2020, thus the VC who predicted the trend to be NFTs, are listed below,

Courtside Ventures, Kindred Ventures, 1kx

Web 3

• The time slot in which investments in Web3 projects rapidly increased was the 2nd quarter of 2021, which demonstrated an increase of 234%

• Investments in Web3 projects are at an ATH right now. Also, considering that the number of investments have been on an upward trend since the 2nd quarter of 2020, it is evident We are in the trend of Web3.Signs that show the decreasing number of investments in Defi and NFTs also stand to support the claim that Web3 is the current trend.

However it is not easy to grasp exactly which projects can be classified as “Web3”. Therefore let us analyze the category of Web3 in more detail by delving into the sub-categories.

Even within the category of Web3 there are more than 20 sub-categories. But between these, there were three noteworthy trends that were responsible for a large portion of investments.

1. Gaming: 2 investments in the first half of 2020 → 8 investments in the second half of 2020 (400% increase)

2. Metaverse: 3 investments in the first half of 2021 → 15 investments in the second half of 2021 (500% increase)

3. DAO: 1 investment in the first half of 2021 → 8 investments in the second half of 2021 (800% increase)

VC who predicted the 3 trends listed above are;

Digital Currency Group, Winklevoss Capital, Spartan Group, Pantera Capital, Walsh Wealth Ventures, SNZ Holding, Collab+Currency, Gate.io, The LAO, Hypersphere Ventures

Analysis 3. +8% than Ethereum

Since we have used data dated up to the 28th of February 2022, let us imagine that you have finished your analysis by the 1st of March 2022 and begun imitating their investments.

There were 20 projects that 20 trend-setting VC secured in January and February 2022 according to Analysis 2. Among these, there were 3 projects that were available for purchase by users in the market.

The three projects were; SSV.Network, Railgun, Lootex.

• SSV.Network

• Railgun

• Lootex

As of May 24th, if the three projects were purchased at the same rate, the average rate of return would be 21.80%, thus yielding 8% more profit than Bitcoin and Ethereum** whose rate of returns were -30.77 %, -30.60% respectively.

When comparing a portfolio that was built through VC tracking, made up of SSV.Network, Railgun, Lootex 3 (red line in the graph below) — between 1 March to 24 May — to the same amount of return invested in Ethereum and its rate of return (green line in the graph below), going past the halfway point, the return on the portfolio built through VC tracking is evidently higher.

Analysis 4. So, What’s the Next Trend?!

Analysis 4 predicts the next trend through a “word cloud”. Word clouds are a visual representation of words that give more visual prominence to words that have been mentioned more frequently. This is done by enlarging or bolding words so that important concepts and keywords can be immediately recognized and intuitively understood. Words clouds are most frequently used when analyzing big data so that the characteristics of the data are spotlighted. But in this text, we will visualize the descriptive words used to summarize particular projects.

For example, in the 9 months prior to the DeFi summer (Q3 2020), mentions of words related to “Finance” and “Financial” increased in the word cloud, and as shown, such keywords gradually moved from the edge of the word cloud to the center. Eventually, in the third quarter of 2020, the keyword ‘DeFi’ appeared at the very center, and through this, the following insights were obtained.

Before the wave of DeFi began, keywords such as “Finance, Financial, Trade, Buy, Loan” were frequently mentioned. Then eventually this new trend of Defi took over the market.

Keywords such as Financial or Finance were located at the edge of the cloud but gradually move to the center, then eventually the keyword DEFI appears and immediately locates itself in the center.

Likewise, the word cloud from the 2nd quarter of 2021 to the first quarter of 2022 is shown below.

Thus, the next trend predicted through the word cloud above would be as follows.

Metaverse + something (e.g., Metaverse Fashion brands, AR/VR services, Metaverse Avatars, etc) Game/DAO/NFT + Financial (Defi services from those that provide basic functions such as lending/swaps/providing liquidity to more interesting defi services that provide specialized functions. e.g., Loans for Gamers/Guilds, NFT backed lending protocols, etc) 3. Asset management (With the arrival of crypto winter, the need for projects that can manage personal assets safer than ever is predicted to increase.)

1. Social Communities based on Solana (e.g., Fans, Sports, Artist, Music, etc)

I, the writer, predict the projects with the three following keywords will receive heated attention in the market in the next 3–9months.

Final Comment

Through this article, we explored investment data of VC from various perspectives alongside my personal insight. However, this was a very basic level of analysis with lots of room for improvement and development in the future. Starting with this article, I plan to publish a series of articles analyzing data relevant to crypto of which this article can be seen as the first — thus only discussing basic aspects. The following articles will be written on the topics listed below. #staytuned

• Identifying hidden cartel by drawing a map of the networking relationships between VC and Founders, and VC to VC

• Identifying which characteristics of a project attract investments from VC and listing projects that are most likely to receive VC investments

• LP wallet tracking through VC wallet tracking

• Dividing VC into tiers based on rate of return, and identifying characteristics of each tier

Now let us conclude this article, published on 17 May, with a quote from a16z.

It is still early days for web3 — a16z

#stillearly

References:

[1] Dove metrics — Dataframe

[2] Bitcoin price chart — Coingecko

[3] Opensea volume chart. source: Delphi Digital

Copyright 2022. nonce Classic. All Rights Reserved.

translated by Esther Kim