Wall Street Vet Launching Token-only VC Firm, Aiming for $50M to $75M
Blockworks Exclusive: Due diligence for potential investments is handled by an incubator that consults on tokenomics and broader blockchain strategies
Blockworks exclusive art by Axel Rangel
- The venture capital firm just started fundraising for its flagship vehicle
- Employing a Web3 focus, the strategy plans to key in on five verticals: fashion, finance, gaming, music and sports
A longtime cryptocurrency proprietary trader is trying his hand in the venture capital space, according to sources familiar with the matter and marketing materials obtained by Blockworks.
Antonio Hallak is now in capital-raising mode for his Illumina Capital, a digital assets-focused venture firm with an incubator that keys in on token investments — not equity stakes.
The startup’s fundraising efforts are led by veteran hedge fund marketer Melissa Fox. She plans to raise between $50 million and $75 million for the launch, with backing from a number of institutional investors, sources said, including crypto natives and deep-pocketed traditional financiers.
Illumina’s flagship vehicle, Illumina Fund I, imposes a minimum investment of $1 million, but word is that would-be limited partners are already asking to chip in considerably larger amounts.
The plan is to raise a second fund shortly after the flagship is up and running.
Hallak confirmed the launch but declined to describe the startup’s strategy or share additional details. Indications are Hallak is favoring a token approach, in part, because of the increased liquidity it provides limited partners.
Such tokens typically change hands frequently on the secondary market. Illumina’s venture exits are expected to take between six to 18 months, according to the marketing materials — a considerably shorter duration than pure-play equity stakes.
Key to the venture is the incubator, Illumina Labs, a sister company to Illumina Capital. The entity guides startups from concept to whitepaper to tokenomics to finding their proper market fit, as well as crafting and performing security audits on smart contracts, among related functions.
In some cases, the firm’s investors can contribute to the incubator’s pipeline of startups — or even tap its services on their own accord. One investor, Inder Phull, CEO of music metaverse startup PIXELYNX, enlisted Illumina Labs to consult on his company’s tokenomics and broader blockchain structure.
PIXELYNX is now investing in the venture fund, which Phull told Blockworks is expected to produce returns that are “much more significant and meaningful from a token perspective, especially when you pick the right projects.”
“The returns are much more meaningful compared to traditional equity, where, maybe, one out of 50 companies make a meaningful edge,” Phull said.
There’s also a market-making component for freshly issued tokens run out of another Hallak affiliate, Weybridge.
Illumina Labs, the incubator, is set to have about 10 employees in the coming weeks and is expected to scale to 30 to 40 staffers before year-end, including engineers, smart-contract developers and tokenomics experts.
“One aspect of our approach that has been hitting the right chord with our portfolio companies is the fact that we’re not just a capital provider,” Hallak told Blockworks. “The accelerator, that’s the initial entry point…It shows we’re giving them the highest probability of success to get to launch.”
Hallak plans to employ a multi-vertical approach to focus on what he deems as an accelerating Web3 and metaverse evolution that will transform not only crypto, but also traditional industries. As such, Illumina plans to invest in sports, gaming, music, finance and fashion.
The token-only model allows Illumina to essentially divvy up chunks of investable capital within much larger corporations. If a long-running music label, for instance, is set to launch its first NFTs, the venture fund could back the token without having to purchase the label’s equity outright, which likely would be prohibitively expensive or perhaps already a public company.
The fund, with one exception, has so far backed new tokens from companies that have been around for 10 or 15 years, sources said — reflecting Hallak’s conviction in the convergence of traditional business lines and digital assets.
In another deviation from traditional venture firms, Illumina plans to take in limited partner checks upfront. Typically, funds drawdown on capital once they find an investment opportunity.
Another limited partner, gaming veteran Rudy Koch, co-founder of blockchain-based gaming startup Mythical Games, said the focus of the fund squarely hits the evolving needs of consumers.
“Web3 is creating this new consumer, who wants to be part of the value chain in whatever industry that is,” Koch told Blockworks. “We don’t want to be just consumers anymore — we want to be partners in the products we engage with. And tokenomics and DAOs are examples of ways that we can meet that goal, ways that we can bring consumers further into the value chain.”
Hallak — who prior to building out a number of quantitative crypto trading models led Credit Suisse’s electronic trading unit — will in the meantime invest the capital in a market- and delta-neutral, yield-generating strategy designed to deliver annual returns in the low double-digits.
The fund plans to back 20 to 30 early-stage token projects in all. The vehicle’s investment committee imposes a maximum 20% allocation to any one token.
Limited partners have the ability to invest via crypto and receive in-kind contributions once the fund winds down. Hallak, Fox and Chief Financial Officer Carey Harrold, formerly of Jump Trading, are now working to finalize the firm’s service providers.
The venture side of the business already has a head of human resources, as well as a head of recruitment tasked with filling a number of open seats, including operational roles and business development professionals.
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