Ex SoftBank, Genesis Traders Delay or Call Off Crypto Launches
Blockworks exclusive: A number of Q4 and early Q1 launches that had been hotly anticipated by LPs are facing lengthy delays — if they haven’t already been nixed entirely
F Armstrong Photography/Shutterstock.com modified by Blockworks
The planned rollout of a former SoftBank professional’s own crypto venture capital firm has joined a long list of promising 2022 launches bumped back — or called off entirely — according to sources familiar with the matter.
It’s pretty much impossible to pin down how many crypto launches of all varieties — including the likes of hedge and venture funds, tokens, ETFs and Web3-oriented startups — got knocked off course in the fourth quarter.
Whatever the exact number is, it’s a big one, industry participants told Blockworks.
Several startups that had been eagerly anticipated by prospective limited partners as their staff and strategies took shape last year stand out. The fallout hasn’t been confined to portfolio managers. Emerging protocols and at least one metaverse collective in the works have been blown off course, too.
David Wang, the former head of a Latin American-focused SoftBank blockchain fund, has called off his capital-raise, according to two sources familiar with the matter.
Wang, who spent about two and a half years at venture capital giant SoftBank, had planned to already be up and running by now with his new firm, both sources said.
The startup, Palmera Crypto Partners, planned to key in on emerging market blockchain venture plays, according to one source, an emerging markets specialist — complemented by an opportunistic liquid token strategy.
The same source said the Wang was supposed to launch toward the end of last year’s fourth quarter or early in the first quarter, but has “completely stopped fundraising, just because of market conditions.”
Wang, who spent time at Morgan Stanley before joining SoftBank, did not return a request for comment.
Due diligence measures mounting
Scores had been counting on — and were closing in on — hefty capital contributions from legacy finance allocators chomping at the bit of digital assets.
Until what happened in the fourth quarter, that is.
Interesting limited and general partners from that buttoned-up world before that already had “so many layers of approval that they have to go through to get anything done,” according to Dan Eskow, the founder of crypto recruiting firm Up Top Search. Eskow declined to discuss specific firms or clients.
Even so, crypto funders have this year largely added to existing reams of due diligence red tape, and ensuing delays for upstart managers hitting the funding trail, according to Eskow.
The veteran headhunter said he’s picked up on a number of recent crypto-native placements into Wall Street firms, one signal that “things are still trending positively” on the whole.
On the crypto sunny side, Amazon is making a big push into NFTs, according to previous Blockworks’ reporting informed by sources. That effort is separate from AWS’ developing partnership with Ava Labs.
Even though more red tape, according to Eskow, has been wound around due diligence processes that were already rigorous.
“So, it seems the push hasn’t gone away, but they move so slow that there’s no action that’s really been taken — until the markets turn up a little bit,” Eskow told Blockworks. “Given the market, they’re just slowing down even more, so they don’t come in at a bad time.”
Ex Genesis execs delayed, too
A launch helmed by former Genesis and Galaxy Digital executives is among them, three sources said.
Josh Lim, formerly Genesis Global Capital’s derivatives head, and Roshun Patel set out to raise half a billion dollars in the fourth quarter, SEC filings show. News of the then-pending launch, DBA Crypto, was first reported by Axios.
Additional staffers were then on board, including at least one Galaxy professional who jumped ship to join the launch. Genesis has faced a number of challenges since, including slashing its sales team.
The New York-based DBA was endeavoring to launch sometime around year end 2022 or at the start of 2023, according to two of the sources. Lim and Patel were poised to take in significant sums of institutional capital last fall. Lim did not have a comment.
Then the market fell apart, leading DBA and its peers in the precarious position of burning through proprietary or outside capital to fund operations in the interim. That becomes an increasingly costly proposition the longer the delay drags on — one that often leads to launches closing their doors before even getting off the ground. (There’s no indication that DBA is set to do so, according to sources.)
Details around what, exactly, has been delaying their launch aren’t clear. But it’s known that the startup was in advanced talks with a number of potential backers last year. One source said there have been complications in terms of negotiating the executives’ exit from their former employer, Genesis, as well.
Cold Q4 crypto feet
Perhaps the most consequential rationale behind it all: Institutional backers of early-stage digital assets initiatives got cold feet in the fall. Rising regulatory scrutiny certainly played a role.
From Wall Street to Mayfair, London’s high finance hub — and from the crypto-heavy Chicago proprietary trading scene to sector hotbeds in Asia — allocators primed to deploy substantial sums pulled back in the fourth quarter.
No small number of traditional finance power players hit the pause button, or shelved their developing Web3 efforts entirely, as spot cryptoasset volatility took off. A number of those deep-pocketed backers — encompassing both crypto natives and long running allocators to financial instrument staples such as stocks, commodities and structured products — simply stopped backing launches and emerging managers running crypto strategies.
And limited partners certainly curtailed their check sizes, and, in some cases, the number of managers under their investment umbrella at one time. The pullback, industry participants told Blockworks, started even earlier than the last three months of 2022, when FTX’s abrupt fall sent markets spiraling.
The industry’s first two black swans over the last 12 months got that bearish limited partner ball rolling to an extent, according to fund of funds operators, as well as additional institutional backers — such as crypto hedge and venture fund seeders and anchor investors, plus suppliers of acceleration capital.
Ryan Rasmussen, an analyst for crypto investment firm Bitwise Asset Management, said that generally speaking, “large corporations that have started to dip their toes in crypto” are now doing so from a “more long-term strategic investment standpoint.”
The sentiment is indicative of what market participants dubbed a substantial, if emerging, sector shift: Allocators with dry powder to blow are overhauling their due diligence standards. Internal vetting processes of outside portfolio managers is taking longer. Executives who oversee those mechanisms are increasingly cognizant of US regulators (further) cracking down on cryptocurrencies this year.
How it’ll all end, at least in terms of the quarters to come, is anyone’s guess.
“So, the public perception of how things are going might fluctuate with market sentiment, but [there are a] lot of big brands…still moving full force,” Rasmussen said.
When does FTX go away?
How it all started is more apparent.
Aftershocks from the disarray of Sam Bankman-Fried’s FTX, plus the added-on failures and funding freezes by a handful of the industry’s other former giants, are here to stay — at least for the foreseeable, according to Faris Oweis, the founder of Crypto Coach.
“It’s not like [FTX’s fall] was a moment that just stayed stagnant and only lives there, right?” Oweis said. “It permeates and then spreads to the following quarters. So now, you have a lot of [launches] that are quite literally just trying to complete [their rounds]. And you have people that are trying to build and fundraise at the same time.”
Oweis’ firm in part acts as a consultant for Web3 founders ready to raise. He declined to comment on specific clients.
Rounds have been slowing down over the last three to four months, Oweis told Blockworks, adding that it’s been especially tricky for otherwise promising DeFi yield newcomers to justify pitching products.
“The problem is that the business model really exists, but you need underlying liquidity for that business model to quite literally also exist,” he said. “So, you have a TVL and token product problem…They’re kind of between a rock and a hard place.”
Problems have plagued more than DeFi. Futureverse — which reportedly came out of the gates with bold December ambitions with eight crypto companies on board to collectively craft a user-centric metaverse — has delayed its own pending launch, one HNW crypto investor said.
The metaverse, which has tapped the likes of Keanu Reeves as advisers, has set out to “take a different [Web3] path” with a “different structure,” according to the project’s white paper.
Futureverse has positioned itself as the antithesis of metaverses controlled by big corporate players, such as Meta, in a bid to capture market share by emphasizing its decentralization. The initiative plans to run on the Root Network, its in-house blockchain.
“The same few companies continually consolidate the economy and our attention, economic value, and influence over how we think,” the white paper said.
The “large valuation” project and its peers, as well as its competitors, have “delayed their launch for more favorable market conditions where hype and meme-status may make or break their success,” the source said. Representatives for the startup and its associated foundation did not return a request for comment.
The Web3 initiative clearly has company in the delayed launch department.
The website of Palmera, the planned launch led by Wang, the former SoftBank crypto investor, was still standing as of publication. On its otherwise-sparse landing page, the Miami startup described itself as a “global crypto venture fund backed by the largest names in crypto and institutional investors.”
An additional request for comment emailed to the firm’s general inbox bounced back.
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