Shima Capital Launches Crypto Fund as Web3’s “Missing Layer”

Shima Capital, led by a venture capitalist with crypto experience, has raised $200 million for a new vehicle that is cashing in on early private crypto plays.

The Yida Gao-led firm’s limited partners include the likes of hedge fund billionaire Bill Ackman, former US presidential candidate Andrew Yang and fellow digital asset-focused venture firm Dragonfly Capital.

Gao, who previously founded crypto hedge fund firm Divergence Digital Capital (DDC) – which now has more than $100 million under management – ​​is set to focus on nascent private token plays alongside seed and pre-seed stocks. The fund also aims to take up convertible debt-to-equity convertible bonds in promising start-up companies.

Gao left DDC around the end of 2021’s first quarter to set up Shima, which is named after the small town in China where he was born. The firm’s flagship imposes a long-term lock-up of six years, with optional extensions at the discretion of a majority of limited partners.

Shima’s team has already started using external money to work in a handful of crypto startups. The fund requires a minimum investment of $1 million for institutional investors, with some backers chipping in $5 to $10 million, Blockworks has learned. Yang and other limited partners were not immediately available for comment, according to their representatives.

“Why now? Some of the funds have become so big that we see a missing component,” Gao told Blockworks. “It’s impossible for them to support [early-stage startups] and move the needle on [returns] in any meaningful way.”

Shima Capital founder is no stranger to venture capital

Gao has been in the venture capital space since raising his first special purpose vehicle (SPV) in 2014. He said the digital asset sector is still small enough by market capitalization that a small to mid-sized fund is primed to “effect multiple changes” in Web3 than in Web2 – especially as the markets crashed after the explosion of Terra stablecoin UST and the subsequent collapse of cryptolenders.

Multi-billion dollar crypto companies still rise and fall at the whims of the world’s largest hedge fund firms.

Shima typically targets investments of $500,000 to $2 million, a total that large venture firms, including a16z and Sequoia, typically don’t favor because they have so much dry powder at their disposal.

The startup concentrates on companies working to solve consumer, blockchain-based gaming, metaverse, sustainable DeFi, regenerative finance and infrastructure problems in crypto areas, among others.

“We see a pocket of opportunity that is missing from the capital stack for Web3 by being the first institutional capital in pre-seed,” Gao said.

Gao’s team includes Chief Technology Officer Carl Hua, a Celsius alum; head of research Alex Lin, a former venture partner at a firm run by former Binance executives, Old Fashion Research; and Chief Talent Officer Chris Adams, who previously held the same title at Atomic VC.

Crypto growth provides institutional support

Shima plans to set up an incubation model, where the team will work with a number of portfolio companies each year in an advisory capacity. More appointments are in the works.

The incubation approach also includes consulting on tokenomics, especially in terms of inventive and governance structures. “We’re trying to be the missing team in Web3,” he said.

Shima also offers limited partners exposure to co-investments. Gao calls in most of the investor capital at the start of the fund and then draws down on that pool as investment opportunities arise, although he has made agreements with some investors to pay over time.

Down the line, he considers parking investor capital in a market-neutral, return-generating liquid hedge fund strategy that aims for low volatility returns in the 7 to 8% range. This endeavor could in turn lead to an in-house digital asset-focused crypto hedge fund.

Shima’s other day one investors include Animoca Brands, Mirana Ventures, OKex and Republic Capital.

Prior to founding DCC, Gao was a general partner at Los Angeles-based venture capital firm Struck Capital. He has also spent time at private equity investor New Enterprise Associates and Morgan Stanley.

Resume aside, even a couple of years ago, Gao said, pulling off such a launch with sticky, institutional capital would have been difficult.

If not impossible.

“I think it would be very difficult to get institutional support … Crypto has grown up a lot in the time since,” he said.

Get today’s best crypto news and insights delivered to your inbox every night. Subscribe to Blockworks’ free newsletter now.