As the crypto market continues to slog through a fundraising winter, Lightspeed Faction, a blockchain-focused venture capital firm, is betting big on the space. The firm has launched its inaugural $285 million fund, its co-founders exclusively told TechCrunch.
Faction will focus mainly on early-stage blockchain projects raising seed or Series A rounds. Before launching publicly, the fund had invested about 20% of its capital in a handful of projects, Samuel Harrison, managing partner at Lightspeed Faction, said. The deployment period will be on a roughly three-year schedule, but may vary depending on the investment environment, Banafsheh Fathieh, a general partner at the firm, said.
“On the maturity arc, most of what you see at the growth stage speaks to crypto as an asset class. It’s a lot of trading use cases or capturing the ethos of ‘this could be an emerging asset class.’ But crypto, as a technology trend, is relatively young,” Fathieh said. “The early stage is where we see the greatest amount of opportunity.”
The fund originally set out to raise $250 million, but ended up with 14% more than its target. “We felt like anywhere from $250 million to $350 million made sense,” Harrison said.
He added that the fund’s LPs are mostly institutional investors and some strategic investors. They also raised a small portion of capital from family offices and friends.
“We wanted to make sure we were always flexible with capital,” Fathieh said. “When fund sizes decline, it’s difficult to step in as a syndicate or lead.”
The firm wants to be large enough to lead seed rounds and early Series As, and at the same time “essentially have full control when it comes to working with companies” to help them scale and be a valuable partner, Harrison said. “If we went smaller than that, it’s difficult to do, because then you don’t have the dry powder to support these companies, especially the high-profile ones with the greater capital needs.”
“It’s being big enough to matter,” Harrison added. “But also not so big that it’s difficult to deploy.”
Fathieh said the firm doesn’t have “a hard and fast rule for check size or ownership,” and added that it invests in either tokens or equity. Its average check size is in a “sweet spot” of about $5 to $10 million, which usually gives the firm a top spot as lead investor, Harrison said.
The firm is run by people who previously worked at crypto companies like Coinbase, Blockchain.com and Amber Group, among other entities. It is also in a joint “hybrid structure” venture with Lightspeed Venture Partners so it can leverage the venture firm’s platform, Harrison said.
Both Fathieh and Harrison see the current crypto market conditions as a perfect environment to deploy in.
“It’s clearly a time where a lot of generalist capital has left the space,” Harrison said. “We’ve been investing through a few cycles, so it’s a good time to invest. It’s better than when the market is extremely hot…This is the time we want to be most active while others are questioning it.”
Although the crypto market is down from all-time-highs, Fathieh said they want to focus on the long term. “Markets go up and down; we look at it for 20 seconds of our day, but the underlying fundamental conviction is there, and there’s an open door here.”
Harrison feels it’s not about timing the market, because the investments they make are a “10-year thing not a one to two year thing.”
“If next year is bad, we’ll still be investing, continuing to deploy and doing what we do with a 10-year time horizon,” he said.