NFT-focused funds find parallels with traditional venture investing

Spencer Ventures, a crypto fund focused exclusively on NFTs, has decided to come out of stealth mode after receiving a multi-million dollar check from a family office with $10 billion in assets under management.

Blockworks spoke to founder and fund manager Spencer Gordon-Sand about what it takes to raise a fund aimed at institutional investors in the bear market.

At the height of the bull market last November and December, Gordon-Sand advised his investors to sell much of their portfolio and wait for the right moment to buy back in.

Now the 30 unique investors, who come mostly from Chicago and the Midwestern United States, have raised $4.5 million, he said.

Anchoring the group is an investor pitching in a hefty percentage that, a source familiar with the deal told Blockworks, is likely the venture capital arm of the Chicago-based Pritzker Group.

Institutions looking to increase exposure to digital assets are turning to NFTs, Gordon-Sand said, while most of the top funds, such as those from Grayscale or Galaxy, only offer exposure to ether or bitcoin.

“NFTs to me are the first really compelling thing outside of the core technologies of Ethereum and Bitcoin, where I see people building real companies and creating real value,” different from other alternative cryptocurrencies or DeFi, he said.

Gordon-Sand added that he has seen an appetite for the venture angle of crypto-native companies — NFTs and decentralized autonomous organizations (DAOs) — from institutional family offices, investors who may have trouble finding avenues to deploy capital.

After working in the startup and venture capital world for the past decade, Gordon-Sand eventually became a partner at VC firm Lofty Ventures. There he founded a venture syndication practice targeting accredited investors curious about angel investing.

“One of the reasons [institutions] invested in me,” Gordon-Sand said, “is because they don’t actually want to deal with keeping those assets on their own balance sheets” because of the increased internal and legal taxes that most family offices have.

So far, Spencer Ventures has only used 20% of its total capital since the market downturn in the second quarter. He was waiting for a post-merger market to distribute the rest of the cash, which remained in USD.

Gordon-Sand’s greatest skill appears to be timing. His biggest purchase includes a rare cosmic Moonbird NFT, purchased three hours before the project’s parent company, Proof Collective, raised $50 million in funding announcement at the end of August.

He also bought a laser-eyed Bored Ape Yacht Club (BAYC) NFT for 133 ETH. He said he used $1,227 worth of ether bought after Wednesday’s Fed meeting, putting the total at about $163,000.

Laser eyes are one of the rarest traits of a boring monkey, and during the bull run they tended to trade at three to five times the price floor. Gordon-Sand bought his when the floor was 70 ETH, while the cheapest BAYC NFT on OpenSea is currently going for 80 ETH.

He also bought “a bunch” of Mutant Ape Yacht Club and other BAYC NFTs during the BendDAO liquidation scare.

The CryptoPunks in his portfolio were bought “for the culture.”

“People see me buying punks, know I have liquidity and message me when they want to sell interesting grails that are harder to move,” Gordon-Sand said. (Grails is slang for a coveted item.)

The Spencer Venture strategy is to look at highly liquid pools to enter and exit. By taking mostly larger positions, he treats the company like a venture capital fund.

“That’s the cool thing about NFTs. It’s kind of like a venture investment, but you can actually trim positions, manage liquidity differently and actively manage risk,” Gordon-Sand said.

He compares the market value of NFTs with that of private market values ​​of startups. Yuga Labs, for example, was valued at $4 billion after its March funding round — a valuation typically seen by public companies.

NFTs are relatively illiquid, but that can be a feature to take advantage of, Gordon-Sand said.

“Being liquid in an illiquid market is how you get the best deals,” he said, adding that “in bear markets, the multiples of value for rare assets compress over floor assets, which I see as an opportunity for someone with a longer time horizon which I have.”

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