How Crypto Winter Brought Big VC Returns for Blockchain Coinvestors

• Matthew Le Merle, a founder of Blockchain Coinvestors, raised a fund in the 2018 crypto winter.
• It is now a top performer, with positions in venture capital firms such as Pantera and 1Confirmation.
• Le Merle’s firm had exposure to FTX, but he says the impact is limited and will not slow Web3 adoption.

As an investor in more than 40 crypto-focused funds, Matthew Le Merle has a front-row seat to industry performance. Despite this year’s string of crypto disasters – Three Arrows Capital, Voyager, Celsius, FTX and BlockFi – he’s optimistic.

That optimism stems in part from the numbers at his own firm, Blockchain Coinvestors, a fund of funds that has backed venture capital firms such as Haun Ventures, Variant, Dragonfly Capital and Pantera Capital. The first fund, as of 2019, has achieved returns that place it in the top 10% for fund performance, according to data from PitchBook and Preqin.

The firm focuses on supporting early-stage crypto fund managers in the US, although it has also made some direct investments in industry companies, including Coinbase. It steers clear of public tokens and crypto hedge funds, which Le Merle said has helped shield it from much of the tumult in the crypto markets this year.

Le Merle, a managing partner at early-stage investment firm Keiretsu Forum and a former consultant, founded Blockchain Coinvestors in 2014 with Alison Davis, his wife, who was previously a partner at private equity firm Belvedere Capital and the CFO of Barclays Global Investors. They started investing in crypto and Web3 related businesses with their personal funds. In 2018, they started raising their first fund from external investors.

The timing – just as a crypto winter had begun to set in – was unfortunate. But Le Merle and Davis were undeterred, taking solace in the adage that investment returns are often rich after a sharp downturn.

“A lot of the fluffiness, the irrational exuberance leaves the scene,” Le Merle said. “There are fewer distractions and more opportunities for those who remain.”

They ended up raising $8 million for their first fund in 2019. The portfolio includes funds from Pantera as well as VC firms 1Confirmation and Volt Capital. At the end of the third quarter of 2022, Blockchain Coinvestors’ first fund had a net total value paid in, or TVPI, of 4.82x, meaning that investors had returned almost $5 for every dollar they had invested.

Le Merle and Davis have since raised two more funds and launched a special purpose acquisition company, or SPAC. Their firm now has $450 million in assets under management.

Blockchain Coinvestors has not completely avoided this year’s crypto attack. Pantera, one of the VC firms holding funds in the portfolio, was an investor in FTX, the bankrupt cryptocurrency exchange whose founder, Sam Bankman-Fried, now faces criminal charges of fraud and conspiracy. Le Merle told Insider that he expected FTX’s collapse to have a limited impact on Pantera.

“Given their broad and diversified portfolio, we do not expect this to impact their performance in the medium to long term,” he said.

As this crypto winter has raged, several investors have told Insider that the distinction between startups that built buzz largely through speculative tokens and those that are building potentially transformative blockchain technologies will become much more meaningful.

While this year’s market crash has dampened some investors’ enthusiasm for cryptocurrencies, others remain optimistic about applications of Web3 in areas such as finance, gaming and retail.

For example, companies such as Starbucks, Nike and Mastercard are pushing forward with Web3 initiatives. Goldman Sachs CEO David Solomon recently extolled the virtues of blockchain in a summary article for The Wall Street Journal.

Le Merle echoed that sentiment. “The real story for us is that digital money and assets are inevitable,” he said. — And now everyone agrees with us.