As discussed in a previous post, FJ Labs’ Investment Strategy, we take a unique, high-velocity angel investment approach to early-stage VC:

• We evaluate 40-50 deals per week,
• We invest based on two 60-minute calls,
• We do not lead, and
• We do not take board seats.

As a result, our portfolio consists of over 1,000 companies that span multiple investment stages, geographies, and industries in marketplaces and network effect businesses. Crypto is the ultimate network effect business. FJ Labs has been making private crypto investments since its inception as referenced in FJ Labs’ Crypto Credentials. For example, we were early investors in Animoca and Figment.

Concurrent to the core fund, I have been an active crypto investor since 2016. Considering this, we devised a strategy to incorporate liquid crypto into FJ Labs’ most recent fund by approaching it with a VC lens. In 2022, we hired Chris Keshian to establish a more formal process around the liquid crypto investment activities Chris and I were pursuing individually, and to bring them into the fund. Chris has been an investor and trader in the crypto space since 2013. In 2014, Chris co-founded the first fiat gateway onto Ethereum, and in 2016 he co-founded a long/short crypto-focused hedge fund. While at MIT, Chris created a unique method to value cryptocurrencies using regression and real-time fundamental metrics, which serves as the basis of our liquid strategy. Chris writes extensively about his views on the crypto markets on his blog.

Our strategy is to make long-only investments in projects we like using a similar lens that we use on the private side (team, market, business, valuation), but with the benefit of being liquid and having full data transparency. In upcoming blog posts, we will detail our full data collection and evaluation processes.

We believe now is the best time to pursue a liquid crypto strategy for a few reasons:

• Crypto has never gone through a macro risk-off moment. Since these assets are still viewed as the riskiest portion of an investor’s portfolio, and because they are liquid, they are the first to get sold in an environment like this.
• The implosion of multiple funds, centralized lenders, and high-profile exchanges have further exacerbated the downside move across this space.
• The regulatory headwinds in the United States are the icing on the cake and have been the final shoe to drop in a year of negative news and sentiment surrounding this asset class.
• Since this is still a highly correlated asset class, the great projects with real revenue and sticky users sell off just as hard as the projects that have no real merit.

We believe that the above factors, combined with our proprietary evaluation process, have provided a unique opportunity to realize venture returns in this emerging asset class.

We recently closed FJ Labs III and are early in our deployment period. We have made 12 liquid crypto investments so far and will continue to opportunistically invest in the strategy mimicking our diversified FJ Labs’ core investment strategy. We are optimistic that the asset class can boost FJ Labs’ core returns with limited downside.